How Crimean crisis impacts the Russian economy

The Crimean crisis is an ongoing international crisis involving Russia and Ukraine. Most developments apply to the Crimean peninsula. Both Crimea and Sevastopol are highly populated by an ethnic Russian majority. After Ukrainian revolution the situation in Crimea was compromised and an election was held for Crimea to join Russia. So far Russia’s actions in Ukraine have been assessed mainly in terms of its international relations but the Crimean crisis hasn’t solely impacted the everyday lives of the people living in Crimea and Ukraine but also the economy of Russia.

According to different experts, Russia’s economy is already in recession with a drop in investment, a real-terms decrease in incomes and a rapid decline in consumer demand. Russia’s economy has already sunk for two consecutive quarters and as the rouble is weakening it has caused a growth in inflation. On 3 march 2014, a week after the start of Crimean crisis, Russia’s RTS stock market index plummeted by 12 % and the rouble fell by 1.9 % against the dollar despite massive interventions by Russia’s Central Bank. The Crimean parliament’s decision to join Russia has only increased the economic instability in Russia.

The rouble had already fallen by 10 % in two months and the possible sanctions by the EU are likely to only deepen the economic crisis of Russia. In the EU meeting in Brussels 28 foreign ministers were considering a visa ban and an asset freeze against a number of Russian officials. If the visa ban and asset freeze don’t rattle Moscow or Russia makes further military moves into eastern Ukraine the EU is ready to move to other stage which would involve economic sanctions against Russia.

Although full economic sanctions against Russia seem unlikely at the moment, Russia has already paid a high price for its aggression in terms of a fall in the stock market and a further decline in investment due to both the increased cost of borrowing and the further alienation of investors. If the economic sanctions take place and were faced against Russia’s gas supply, by replacing it with Norwegian gas and liquefied natural gas, then Russia would stand to some $100bn a year which could lead to its economic collapse.

Even though Russia is, in its own words, just trying secure the peace of its own residents in Ukraine by trying to make Crimea join Russia it is only causing itself a lot of harm and the possible sanctions could lead to such a terrible economic state that could lead to an economic collapse.

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One Response to How Crimean crisis impacts the Russian economy

  1. roopekantola says:

    Excellent topic and an interesting point of view!

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