from the back-in-the-USSR dept.
Papas Fritas writes:
"James B. Stewart writes in the NYT that there's one major difference between now and the last time Russia invaded a neighbor (Czechoslovakia in 1968): Now Moscow has a stock market that provides a minute-by-minute referendum on Putin's military and diplomatic actions.
On Monday, the Russian stock market index (RTSI) fell more than 12 percent, in what a Russian official called panic selling and the ruble plunged on currency markets, forcing the Russian central bank to raise interest rates by one and a half percentage points to defend the currency. On Tuesday, as soon as Mr. Putin said he saw no need for further Russian military intervention, the Russian market rebounded by 6 percent. With tensions on the rise once more on Friday, the Russian market may again gyrate when it opens on Monday. Russia is far more exposed to market fluctuations than many countries, since the Russian government owns a majority stake in a number of the country's largest companies and many Russian companies and banks are fully integrated into the global financial system.
The old Soviet Union, in stark contrast, was all but impervious to foreign economic or business pressure, thanks in part to an ideological commitment to self-sufficiency. By contrast, today "Russia is too weak and vulnerable economically to go to war," says Anders Aslund. "The Kremlin's fundamental mistake has been to ignore its economic weakness and dependence on Europe." Almost half of Russia's exports go to Europe, and three-quarters of its total exports consist of oil and gas. The energy boom is over, and Europe can turn the tables on Russia after its prior gas supply cuts in 2006 and 2009 replacing this gas with liquefied natural gas, gas from Norway and shale gas.
If the European Union sanctioned Russia's gas supply to Europe, Russia would lose $100 billion or one-fifth of its export revenues, and the Russian economy would be in rampant crisis. Other penalties might include asset freezes and the billionaire Russian elite who are pretty much synonymous with Mr. Putin's friends and allies are the ones who are being severely affected by visa bans, which were imposed by President Obama on Thursday. "The recent events were completely irrational, angering the West for no reason," says one Russian economist. "This is what is most scary, especially for businesses. Instead of reforming the stagnating economy, Putin scared everybody for no reason and with no gain in sight. So it is hard to predict his next actions. But I think a real Cold War is unlikely.""