The Russian economy is in dire straits. Growth is flatlining, the government's budget is being squeezed, and international sanctions over the country's role in the Ukraine crisis are combining to squeeze Moscow.

However, the reasons for Russia's decline predate the country's current crisis and have as much to do with long-term trends like an aging population and declining labor productivity as with the recent collapse of the oil price (and with it the ruble).

The choices faced by Russian policymakers are stark. They can either attempt to fight the decline by spending the country's precious foreign exchange reserves. Or they can let the currency float free and risk financial instability that could crush businesses.

So far they have opted for the former. The central bank burned more than $15 billion last month in an attempt to soften the ruble's fall. But it has failed to instill confidence either domestically or internationally.

The Russian economy grew at an average rate of 7% a year between 1998 and 2008. This was expected to slow somewhat ...

... but not this much.

So what's going on? The crisis in Ukraine and the international sanctions against Russia that followed are a large part of the explanation.

Tensions between Russia and the West have been steadily growing over the past few months, as there has been a sharp uptick in Russian bombers and fighters flying missions over Europe. This increase in activity has  taken place against the backdrop of a frozen conflict in Ukraine, which has already pitted Russia and the West against each other. 

This rise in tensions, summarized succinctly in a recent brazenly anti-Western Putin speech, has led to Russian aerial incursions being viewed with increased hesitance. 

"What is significant is that across history, most of these incursions have been very small groups of airplanes, sometimes singletons or at most two aircraft,"the Supreme Allied Commander in Europe, U.S. Air Force General Philip Breedlove, said at a Pentagon briefing.

"What you saw this past week was a larger, more complex formation of aircraft carrying out a little deeper, and I would say a little bit more provocative, flight path."

We have listed below some of the most notable instances of provocative Russian aircraft exercises over the US and US allied territory since March 2013. 

March 29, 2013 — Sweden

Russian military aircraft simulated a large scale bombing run over Stockholm, Sweden. Two Tu-22M3 Backfire heavy bombers, which can carry cruise missiles and nuclear weapons, and four Su-27 Flanker fighter jets flew within 30 to 40 kilometers of Swedish territorial waters before returning to Russia. 

February 24, 2014 — Estonia

On February 24, Estonia's independence day, US F-15Cs intercepted a Russian spy plane. The F-15Cs were in Estonia as part of the NATO rotational force that helps to police the Baltic states' airspace. 

May 2014 — California and Guam 

In a seeming return to Cold War tensions, Russia increased its aerial activity throughout the Pacific. US fighter jets intercepted Russian Tu-95 strategic bombers over Guam and over the Pacific west of the California coast. 

June 2014 — Alaska and California

In the beginning of June, four Russian Tu-95 strategic bombers triggered US air defense systems in Alaska and California. Two of the bombers returned to Russia after being intercepted over the Aleutian islands, while the other two continued to within 50 miles off of the north Californian coast. 

June 2014 — Denmark 

Russia carried out a simulated attack of the Danish island of Bornholm while the island hosted 90,000 guests in a political festival that drew attendees from ranging from politicians to journalists and activists. The Russian planes were equipped with live missiles, and was the most overtly offensive Russian simulated strike against Denmark since the Cold War. 

August 2014 — US 

During a ten day period from the end of July into the beginning of August, Russian strategic nuclear bombers carried out at least 16 incursions into US air defense zones in the northwest of the country. The Russian planes included Tu-95 heavy bombers and intelligence aircraft. 

September 2014 — US 

Two Russian strategic bombers carried out simulated cruise missile strikes against the US during a NATO summit in Wales. The Tu-95s flew to an optimum site for launching the missiles in Canada's north east. US fighters were not scrambled to respond to the threat, as the Russian aircraft stayed out of the North American Air Defense Identification Zone. 

October 2014 — Japan

From May 2014 to October 2014, Japan more than doubled the number of times it scrambled aircraft against Russian aircraft. The Japanese aircraft intercepted a mixture of Russian spy planes and bombers, and focused around a ring of contested islands to the north of Japan. 

October 21, 2014 — Estonia

A Russian spy plane violated Estonia's airspace. The Russian Ilyushin-20 flew for about a minute in Estonian airspace before being intercepted by fighters from Denmark, Portugal, and Sweden. 

October 28, 2014 — Baltic Sea

Seven Russian combat aircraft flew over international airspace in the Baltic Sea. German Typhoon fighters intercepted the Russians over the Gulf of Finland. The Russian aircraft did not change course, and were also intercepted by Danish, Swedish, and Finnish forces before they landed in the Russian province of Kaliningrad on the Baltic Sea. 

October 29, 2014 — Baltic Sea, Black Sea, North Sea, and Atlantic Ocean

Portuguese fighter jets intercepted seven Russian jets over the Baltic Sea. Simultaneously, Turkish fighters were scrambled to intercept two Russian bombers and two fighters over the Black Sea. 

The English RAF also intercepted eight Russian aircraft over the North Sea. After the interception, the formation split, with the fighters and a tanker returning to Russia while two bombers continued towards the Atlantic. The bombers were later intercepted again by the Portuguese over the Atlantic. 

SEE ALSO: NATO intercepted 26 Russian aircraft in two days

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On Christmas Eve 2010, then-Russian President Dmitry Medvedev called his French counterpart Nicholas Sarkozy with some big news: Russia was prepared to purchase two Mistral class helicopter carriers from France for a total of €1.2 billion ($1.5 billion).

Almost four years later, the first of these ships, the Vladivostok, sits idle in the port of Saint-Nazaire, its future clouded by the stand-off between Russia and the West over the crisis in Ukraine.

Last week, the ongoing stalemate resulted in the French project director responsible for delivering the ships being fired. 

So what's going on? There's conflicting information from both sides. What we do know is that back in March of this year, Russia completed its annexation of Crimea from Ukraine. This occurred in the aftermath of protests that had seen the collapse of the Kiev government with Russian President Vladimir Putin accusing the West of stoking unrest and Russophobia in the country.

The response of France was swift. Laurent Fabius, then French Foreign Minister, told the press:"If Putin continues doing what he is doing we could envisage cancelling the sales [of the warships]".

And the threats were apparently backed up. By July, the US and the European Union had announced a tough package of economic sanctions against Russia targeting the country's financial, energy, and defence sectors, along with a number of prominent individuals. It seemed to most observers outside the negotiations that the Mistral contracts would end up as yet another casualty of the chaos in Ukraine.

Even if a cancellation of the order was considered at the time, it was swiftly dismissed. Despite lobbying efforts from other European partners, French President François Hollande remained resolute in his determination to meet his country's commitment to deliver the ships and ultimately won the concession from his European partners to exempt existing contracts.

He told reporters in July: “The Russians have paid. We would have to repay €1.1 billion [if they were not delivered]...at this stage, there are no sanctions imposed that would oblige us to renounce [the contract].”

Although it may have seemed bizarre to outsiders that a country would sell military hardware to a country that it was simultaneously imposing defence sanctions on, the ships were back on track, with the Vladivostok due for delivery in October. To round off the perverseness of the whole situation, the second ship, the Sevastopol, was scheduled to join up with the Russian Black Sea Fleet based in Crimea when finished in 2015. 

However, with the deadline for the handover looming and international pressure to hold off or cancel the sale growing, Hollande decided to set 11th-hour conditions. First, there had to be a genuine ceasefire in Ukraine and second, there had to be an agreement that paved the way for a resolution to the crisis in Ukraine.

The Minsk agreement signed on 20 September by both sides in the Ukraine conflict offered some hope that these conditions might be met in time for the exchange. The nine-point deal set up a 30-kilometre buffer zone between pro-Russian rebels and government forces, a ban on military aircraft flying over certain areas in the east of the country, and a commitment to withdraw "foreign mercenaries".

Few on the ground bought into the optimism. Within days of the treaty signing, fresh violence erupted in the rebel-held city of Donetsk. Elections in the breakaway regions of Donetsk and Luhansk that have been condemned as illegitimate and unlawful by the government in Kiev, the US, and the EU the situation have also complicated the situation.

So all of this brings us to the present. Last week, Dmitry Rogozin, Russia's deputy prime minister in charge of the defence industry and prominent nationalist, released a letter on Twitter purportedly from French arms industry company DCNS regarding the sale of the Mistral class ships. The letter states that the handover ceremony of the Vladivostok would take place on 14 November in Saint-Nazaire and includes:

• Signing of the transfer of ownership and delivery act.
• Hoisting of the Russian Federation colours.
• A military ceremony on the flight deck.

You might have thought that this would be the end of the saga. The invitation to the ceremony had gone out, and been made public. Yves Destefanis, a project director responsible for delivering the Mistral helicopter carrier to Russia, may even have had similar thoughts.

Instead, Destefanis lost his job after Michel Sapin, the current French Foreign Minister, reasserted that the "conditions today have not been met to deliver the Mistral".

So where are we now? Frankly, we have no idea. The EU and the US are going to continue to pressure France to hold onto the ships. France is going to continue to claim that it's allowed to sell them but do nothing about it. Russia is going to get increasingly angry that they've paid for them, are technically allowed to receive them and yet are having to view their ship from afar. And the Vladivostok is going to extend its quiet stay in Saint-Nazaire.

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Home to many a ‘Ring time, as well as one 24-hour FIA GT3 throwdown with as many competitors and fans as it can fit, the Nurburgring has found a new owner in Russian billionaire Viktor Kharitonin.

Autoblog reports Kharitonin — founder of Russia’s largest pharmaceutical company, Pharmstandard — took over from previous owner Capricon, who paid €77 million ($96 million USD) for the track in a bankruptcy sale.

Capricon couldn’t keep up with the monthly €5 million ($6.2 million) payments, however, which was when Kharitonin rode in to save the day.

Since then, the 1,342nd richest individual in the world has set up a holding company named NR Holding AG to oversee operations, as well as paid the next installment for December well in advance of the due date. Kharitonin’s company holds two-thirds of the Nurburgring, with German motorsports company GetSpeed maintaining the remaining third.

SEE ALSO: American Investors Are Buying The World's Scariest Racetrack For $90 Million

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KIEV/DONETSK Ukraine (Reuters) - Ukrainian President Petro Poroshenko called an emergency meeting of his security chiefs for Tuesday to discuss new ways of dealing with the separatist challenge in the east after rebel elections that were denounced by Kiev and the West.

The rogue votes, which Kiev says Russia encouraged, could create a new "frozen conflict" in post-Soviet Europe and further threaten the territorial unity of Ukraine, which lost control of its Crimean peninsula in March when it was annexed by Russia.

Organizers of the twin ballots said insurgent leaders had emerged victorious in both Donetsk and Luhansk -- two Russian speaking areas of eastern Ukraine -- throwing down the gauntlet to Poroshenko, who vehemently opposed the election.

In a statement, the Ukrainian president denounced the vote as an "electoral farce", repeating that it violated a bedrock deal struck in the Belarusian capital Minsk on Sept. 5 intended to pave the way for a settlement of the separatist problem.

His sentiments were echoed by the White House, which condemned what it called "illegitimate, so-called 'elections'" and warned economic penalties on Russia "will rise" if Moscow continues to violate the Minsk deal.

"We are concerned by a Russian Foreign Ministry statement today that seeks to legitimize these sham 'elections,'"Bernadette Meehan, spokeswoman for the White House National Security Council, said in a statement on Monday.

Calling for "adjustments" to be made in the way he handled the east, Poroshenko said he intended to scrap a law that would have offered "special status" to areas in the east including those controlled by the rebels.

This would be among points to be discussed on Tuesday in a meeting of Ukraine's security and defense council, he said.

The "special status" law envisaged allowing the Donetsk and Luhansk regions to run their own affairs and also offered separatist fighters freedom from prosecution.

Kiev says the Minsk agreement provided only for election of local officials under Ukrainian law, and not for separatist ballots aimed at bringing in leaders of breakaway entities who seek close association or even union withRussia.

Instead, Alexander Zakharchenko, a 38-year-old former mining electrician, easily won election as head of the "Donetsk People's Republic", an entity proclaimed by armed rebels last April. In a similar vote in Luhansk, a smaller self-proclaimed pro-Russian entity further east, Igor Plotnisky won more than 63 percent of the vote, a rebel representative said.

Kiev and the West will now be looking to see if Russian President Vladimir Putin will formally recognize the validity of the election, despite their entreaties to him not to do so.

A Russian deputy foreign minister, Grigory Karasin, made no mention of formal recognition but said the newly elected leadership in eastern Ukraine now had a mandate to negotiate with Kiev.

Up to now, Kiev's leaders have refused to hold direct talks with the separatists, whom they refer to as "terrorists" and "bandits".

But the options have clearly narrowed for Poroshenko too.

Poroshenko committed to a ceasefire from Sept. 5 to give chances of a settlement, involving Russia and the separatist leaders, to be worked out.

He has ruled out trying to take back the region by force after big battlefield losses in August. But after a parliamentary election on Oct. 26, he is now supported by a pro-Western power structure, determined to stop the break-up of Ukraine, and he may come under pressure to take a firmer line.

One big question is what the next diplomatic step will be to resolve the crisis with the apparent collapse of the Minskagreement which brought together the Organization for Security and Cooperation in Europe (OSCE), Russia andUkraine.

PUTIN'S FIRST WORD?

Putin's first word on the weekend election could come on Tuesday when he is due to appear at a Red Square ceremony in Moscow marking National Unity day.

"The central election commission deems Alexander Zakharchenko to be the elected head of the Donetsk People's Republic," an election official, Roman Lyagin, told journalists in Donetsk, the separatists' stronghold. Numbers of ballots cast for him appeared to show he had won 79 percent of the vote.

"Plotnitsky got the majority of the votes in the Luhansk People's Republic elections," a spokesman said.

The elections were the latest twist in a geopolitical crisis that began with the popular overthrow of Ukraine'sMoscow-backed leader, Viktor Yanukovich last February.

Russia denounced Yanukovich's ousting as a coup by a "fascist junta" and the following month annexed Crimea and subsequently backed the separatist rebellions that sprang up in the east.

Kiev says that only direct intervention by Russian troops stopped Ukrainian government forces routing the separatists, though Russia, despite what the West says is incontrovertible proof, denies sending troops across the border.

More than 4,000 people have been killed in the conflict, which has led to U.S. and European Union sanctions against Russia.

Chancellor Angela Merkel's spokesman said on Monday Germany found it incomprehensible that "official Russian voices" were talking of recognizing the election in eastern Ukraine.

Current developments in east Ukraine ruled out any premature lifting of EU economic sanctions against Russia and if the situation worsened, further sanctions may be necessary, spokesman Steffen Seibert said.

The Sept. 5 ceasefire has brought an end to full-scale clashes between government forces and the separatists, though sporadic shelling particularly in the airport area of Donetsk, continues to exert pressure on the truce.

Though the city was generally quiet early on Monday, artillery fire from the direction of the airport began to pick up later in the day.

The OSCE said that one of its four drones operating on observation missions in the south-east had been fired on by separatists using an anti-aircraft gun near the port of Mariupol on Sunday. It was not hit and returned to base intact.

(Additional reporting by Natalia Zinets and Alessandra Prentice; Editing by Crispian Balmer and Diane Craft)

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Any hope of respite for Russia's currency has been dashed this morning as the rouble continued its steep decline against the dollar and the euro.

The currency weakened on the back of news that oil prices were falling again on reports that Saudi Arabian state oil company, Saudi Aramco, was cutting prices to US buyers in a bid to compete with the shale oil boom in the country.

The recent falls have more than wiped out the flash rally last week, which saw the rouble suddenly reverse its declines. That rally was rumoured to have been driven by the prospect of a central bank rate increase that was aimed at choking off the flood of foreign currency outflows that totalled $85 billion (€68 billion) over the first 9 months of 2014.

Despite the Russian central bank surprising markets by hiking rates by 150 basis points, it has failed to halt further rouble weakness. The news will be a major worry for Russian businesses that face $35 billion (€28 billion) of debt repayments in December alone.

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Well-known Russian actor Mikhail Porechenkov, who has appeared in a host of spy and action movies, made a high-profile public appearance on Thursday — firing a machine gun with rebel fighters in the so-called Donetsk People's Republic.

Video of the event, shot by Novorossia TV, was reportedly filmed at the Donetsk Airport, where Ukrainian military and separatist forces have clashed on different occasions since a ceasefire was declared in September.

Porechenkov, also a director and producer, is seen getting chummy with a group of fighters while posed next to a machine gun. Dressed in a blue vest and helmet with a PRESS label, the triple-threat star talks with an off-camera interviewer before he begins firing the gun.

Ukraine's Security Service said in a statement on Friday that it had "initiated criminal proceedings against" Porechenkov for "participation in the so-called 'DPR' terrorist activities."

Who's who in the Donetsk People's Republic. Read more here.

This visit comes as the separatist region in eastern Ukraine continues to see violence despite the an attempted ceasefire aimed at calming the deadly civil war that has left more than 2,000 dead since pro-Russia rebel forces seized key government buildings in Donetsk in early April. Fighting went on throughout the ceasefire agreement made in Belarus in late September, with the DPR's Prime Minister Aleksandr Zakharchenko officially declared it over on October 20. 

Representatives from Kiev, Moscow, and the pro-Russia rebels attended the talks in Minsk and agreed to a nine-point deal on September 19, bolstering an earlier ceasefire that took hold starting on September 5. 

The actor wasn't the only Russian to make a high-profile appearance in Ukraine this week.

 Ria Novosti reported Friday that the first Russian aid convoy had crossed the border and made its way to both Donetsk and Luhansk, also in eastern Ukraine. According to the outlet, the trucks carried aid such as food, medicine, and winter supplies.

Rebels are expected to go forward with holding elections on Sunday in the separatist regions of eastern Ukraine. The controversial polling will be recognized by Russia, according to the country's Foreign Minister Sergei Lavrov. Lavrov said the vote "will be important to legitimize the authorities there."

The European Union and United Nations, however, both condemned the elections in separate statements this week, according to Reuters. The EU said the move would inhibit the peace process, while also criticizing Russia's plans to recognize the vote, saying in a statement that it deplored Lavrov's remarks.

A spokesman for UN Secretary-General Ban Ki-moon said the separatist vote would undermine the Minsk Protocol agreements between the rebels, Ukraine, and Russia. He also said the vote was a breach of both the constitution and national law in Ukraine.

Here is the full video:

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A pro-Russian separatist leader was sworn in on Tuesday as the head of a self-proclaimed "people's republic" in eastern Ukraine in a ceremony that worsened a standoff with Russia.

Alexander Zakharchenko, who was elected in a rogue vote on Sunday that was denounced as a "farce" by Kiev and illegitimate by the West, took the oath to "honestly serve the interests of the people of the Donetsk People's Republic and conscientiously fulfill my duties."

Before the ceremony, which took place in a drama theater in Donetsk, a big industrial city and the separatists' stronghold, another separatist figure, Andrei Purgin, said: "We are starting a history with this inauguration and what happens today will be repeated. We are laying down the traditions of the Republic."

Kiev's pro-Western leaders fear that a new "frozen conflict" could now be created in its eastern regions and further threaten the territorial unity of Ukraine, which lost control of its Crimean peninsula in March when it was annexed by Russia. 

(Reporting by Thomas Grove; Writing By Richard Balmforth; editing by Anna Willard)

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Russia maintains about 250-300 troops in eastern Ukraine to train, advise and equip rebel forces who guarded elections over the weekend to solidify their separation from the central government in Kiev, Air Force Gen. Philip Breedlove said Monday.

Russia also moved mechanized units closer to the border over the weekend to "make sure that the elections went according to the separatist plans," Breedlove, the commander of NATO and the U.S. European Command, said at a Pentagon news conference.

Breedlove disputed published reports that Russian President Vladimir Putin had inserted as many as 4,000 troops into eastern Ukraine as part of his "hybrid warfare" campaign to carve out a second Russian-speaking enclave from Ukraine following the takeover in Crimea.

"There's nothing like that number in eastern Ukraine," Breedlove said of the Russian troop presence. The Russians were also maintaining seven battalion-sized units on the border and were also running regular supply and arms convoys into eastern Ukraine to bolster the self-proclaimed "People's Republics" in the Donetsk and Luhansk regions of eastern Ukraine, Breedlove said.

"Russian equipment, re-supply, (and) training flows back and forth freely across that interborder space," Breedlove said.

Russia's Ria Novosti news agency said that Alexander Zakharchenko, a 38-year-old militia leader, won more than 80 percent of the vote for prime minister in Donetsk. Igor Plotnitsky, a 50-year-old Soviet Army veteran, was declared the winner in Luhansk.

The US and the NATO allies said the elections would not be recognized and denounced them as part of Putin's plan to create a "Novorossiya (New Russia)" from the former Soviet republics. "We don't recognize them. We didn't support them. We don't think that they are helpful," Breedlove said.

"Ukraine and the entire civilized world will not accept this farce," Ukrainian President Petro Poroshenko wrote on Twitter on Sunday, and United Nations Secretary General Ban Ki-moon said the voting in eastern Ukraine was "a breach of the constitution and national law" of Ukraine.

The Russian Foreign Ministry said in a statement on its website: "We respect the expression of the will of southeastern regions' citizens," and called for a "stable dialogue" with the Kiev government.

European Union Foreign Policy Chief Federica Mogherini  called the elections "illegal and illegitimate" and an "obstacle to peace" in eastern Ukraine, where more than 4,000 combatants and civilians have been killed in fighting between the central government forces and the separatists since April, according to the UN.

Breedlove suggested that the recent uptick in Russian Tu-95 Bear bomber flights over the North Sea and as far south as Portugal were meant as messages to NATO not to interfere in the eastern Ukraine elections.

"What is significant is that across history, most of these (air) incursions have been very small groups of airplanes, sometimes singletons or at most, two aircraft," Breedlove said. "What you saw this past week was a larger, more complex formation of aircraft carrying out a little deeper — and I would say a little bit more provocative — flight path."

"They are messaging us that they are a great power and have the ability to exert influence," Breedlove said of the Russian overflights.

Ukraine's security service said that a criminal investigation had been opened into the elections in eastern Ukraine. "The criminal investigation is not a political gesture," said Andriy Lysenko, a spokesman for the Ukrainian military.

Lysenko said that the separatist region "that remains temporarily occupied will eventually be liberated and those who took part in organizing the illegal elections will be held accountable according to Ukrainian law."

Breedlove repeated his view that NATO was now at a "strategic inflection point" as a result of Russia's aggression in eastern Ukraine and Crimea. Europe was now "far from being whole, free and at peace" as envisioned at the end of the Cold War, Breedlove said.

To counter Russia, the allies were "making some changes to how and where we have NATO forces," Breedlove said. He noted the training and joint exercises on a rotational bases conducted in the Baltic states and Poland, first by troops from the 173rd Airborne Division out of Vicenza, Italy, and now by the 1st First Cavalry Division out of Fort Hood, Texas.

"We require additional rotational presence" in eastern Europe "until we see the current situation begin to normalize," Breedlove said.

Currently, the Army has about 31,000 troops in Europe and Breedlove said his "main budget concern was that we take no further troop reductions" in Europe under the constraints of the Budget Control Act and the sequester process.

 "We have it about right now," Breedlove said of the US troop strength in Europe.

SEE ALSO: The crisis in Ukraine just officially got worse

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Last Thursday, Apple CEO Tim Cook publicly revealed he was gay. The next day, a memorial to Steve Jobs in Russia, which was erected outside a college in St. Petersburg, appeared to be dismantled by the firm that originally set up the memorial.

At first, it looked like a case of homophobia, which is rife in Russia thanks to the so-called “gay propaganda law,” introduced in June of last year, which prohibits the promotion of “non-traditional sexual relationships” among young people under 18. But the firm that took the statue down, and the local university, insist that’s not the case.

According to Russia Today, ZEFS, the holding of companies that erected and then dismantled the giant iPhone memorial, explained why they took down the monument.

The firm says it reached out to remove the monument before Tim Cook’s public essay on Thursday because the sensor screen on the giant iPhone had been malfunctioning. The St. Petersburg State University of Information Technologies, Mechanics and Optics (ITMO) concurred with the statement from ZEFS, stating that the university had been asked to take down the memorial to fix its sensor screen prior to last Thursday.

Students at the university also told a local Russian news outlet that the monument was indeed malfunctioning.

The head of ZEFS told Russia Today that he would reinstall the memorial, but only if it can “send a message to the US rejecting the use of Apple devices.” So while a faulty screen may have been the reason the monument was taken down, it doesn't sound like the firm is a big fan of Apple right now, for one reason or another.

SEE ALSO: Russians Tore Down A Memorial To Steve Jobs After Tim Cook Said He Was Proud To Be Gay

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On October 30, Russia's rouble suddenly broke from its downward spiral and surged at its fastest one-day pace in at least 11 years.

Analysts covering last month's flash rally thought that the rouble was "the third-most oversold currency in emerging markets...[and was] poised to appreciate against the U.S. dollar" for weeks.

They all turned out to be wrong: The rally collapsed after a day.

There were at least three theories used to explain why the currency's fortunes were suddenly turning positive.

Initially, analysts' first theory was related to rumours of a huge central bank intervention to crack down on currency traders who were shorting the rouble. The second was a likely rate hike by the Russian central bank that could stem huge foreign currency outflows from the country. And finally, there were whispers that Russia had struck a gas deal with the Ukraine government over winter gas supplies.

All of these predictions came good.

The Russian central bank spent over $15 billion of foreign exchange reserves in October defending the rouble. Moreover, on 29 October, the bank made a significant intervention by signalling that it would undertake $50 billion worth of currency repo auctions, whereby the central bank exchanges roubles for dollars at a fixed rate, to alleviate pressure on Russia's financial sector.

It then went even further with a 150 basis point interest rate hike on 31 October, a full 1% higher than the market had expected. This did briefly reverse the roubles trajectory — as the analysts had predicted. Unfortunately the rally lasted for just two minutes.

Even the rumours of a gas deal, which had looked unlikely after EU-brokered talks looked to have stalled, were vindicated with news that an agreement had indeed been reached between Russia and Ukraine to keep gas supplies flowing through the winter.

There was just one problem: One day after the sudden rally, the rouble's gains were all but wiped out and it has since continued to drop, hitting record new lows against the dollar and the euro on Wednesday.

Why?

The experts missed one very important thing in their analysis: oil.

With crude prices continuing to slide, Russia has confirmed once again that its currency, and indeed its broader economy (oil and gas account for 10% of Russian GDP) remain hostage to the commodity.

Both Brent and WTI crude hit fresh lows on Wednesday suggesting that there may yet be more pain to come — especially as the Russian central bank has just announced that it may stop defending the currency as aggressively.

The chart below is the one that will be worrying Russian policymakers most right now. Russian companies have a huge amount of foreign-currency denominated debt due for repayment over the next few months. As the rouble slides, that bill is getting more and more expensive:

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Russia has test-fired a Sineva intercontinental ballistic missile from a submarine in the Barents Sea as part of tests on the reliability of the navy's strategic forces.

The Russian Defense Ministry said the liquid-fuelled missile, capable of carrying nuclear warheads, was fired by the submarine "Tula" and targeted a testing range in the Kamchatka region on the Pacific Ocean.

The Sineva, which has a range of about 12,000 kilometers, became operable in 2007 as part of Moscow's efforts to shore up Russia's nuclear deterrent.

This test firing was the second ICBM launch from a Russian nuclear submarine in the past week.

President Vladimir Putin has underlined the importance of the nuclear deterrent during Moscow's standoff with the West over the Ukraine crisis.

Based on reporting by Reuters and TASS.

SEE ALSO: These Chinese military advancements are shifting the balance of power in Asia

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Russia's currency is taking another nosedive on Wednesday, briefly hitting a new record low of 45 rubles to the dollar. Falling oil prices have compounded fears about the country's economy causing foreign currency to flood out of the country. The problem now is that the falling value of the ruble is itself causing problems for Russian companies, driving up import costs, squeezing profits and making foreign currency debt repayments hugely more expensive.

In short, Russia faces a death spiral of a falling rouble feeding fears of an economic collapse, which drive the rouble down further.

The currency continued its slide with the Central Bank of Russia announcing that it would be less aggressive in its efforts to prop up the currency. On Wednesday, the Bank announced that it would buy rubles from the market "with the intensity equal to $350 million per day" if it falls below a level that the central bank is comfortable with.

The statement suggests that the central bank is looking to remove its unlimited support of the rouble because it has benefited "speculative strategies against the rouble". The implication is that currency traders had been profiting from the bank's scheme to protect the currency by shorting the rouble to the levels previously set out by the bank. 

Now, with all eyes on the rouble, the claim that the exchange rate will be determined "predominantly by market factors"— effectively free-floating — is likely to be treated with skepticism.

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As one of his activities marking the Unity Day holiday, Vladimir Putin joined Patriarch Kirill to view an exhibition commemorating the Rurik Dynasty, which established tsarism in Russia and ruled for seven centuries.

What kind of message was he trying to send? If you look hard enough, and even if you don't, it is pretty easy to find signs that Putin intends to stick around for a long, long time.

There was, of course, Vyacheslav Volodin's oft-cited remark that "as long as there is Putin, there is Russia. Without Putin, there is no Russia." 

There was also Putin's "Class of 2014," the large cadre of people in their 20s and 30s who are being recruited from poor families in Russia's far-flung provinces, vetted for loyalty to Putin, and brought to Moscow to fill low- to midlevel posts in the bureaucracy. 

And there was the most recent report by Kremlin-watcher Yevgeny Minchenko, who tracks the balance of power within the elite. Minchenko concluded that due to the "sharp rise of Putin's rating after the reunification with the Crimea, the subject of succession within the president's circle has been removed." 

We've long passed the point where it's feasible to expect Putin to leave the Kremlin and enjoy a peaceful retirement.

That could have happened back in 2008. Remember those rumors that he was going to head up the International Olympic Committee? It could have happened in 2011-12. Had Putin chosen to allow Dmitry Medvedev to serve a second term, he could have continued to rule from the sidelines like China's Deng Xiaoping — enjoying de facto power without responsibility or accountability.

But at this point, there isn't a safe exit route from the Kremlin.

Putin isn't going to leave willingly. He certainly isn't going to be removed through the sham events Russia calls "elections."

A popular revolution is unlikely to say the least — a Russian ruler hasn't been overthrown in one of those since 1917. Which leaves a palace coup, which was always the most plausible scenario — but one that looks increasingly remote.

Remote as it is, Putin is clearly not taking any chances.

And this, I believe, is the context in which we need to view the rumors that surfaced last week that Interior Minister Vladimir Kolokoltsev was about to be sacked and replaced by longtime Putin loyalist Viktor Zolotov. 

Writing on his blog In Moscow's Shadows, New York University professor and Russian security expert Mark Galeotti described Kolokoltsev as "a proper professional copper, rather than a yes-man transplant from the security agencies" like his predecessors, Boris Gryzlov and Rashid Nurgaliev. He also has support among the rank and file. 

"None of that necessarily counts, though, and it is perhaps more important that Kolokoltsev is a professional, not a courtier, with no traction in Putin’s inner circle," Galeotti wrote.

"In other words, he is just a 'manager' there to do his job, and can be discarded freely — as far as the Kremlin is concerned — when he becomes inconvenient or simply someone more convenient comes along."

What is also important at this point is that Kolokoltsev is the only official in the so-called "power bloc" who is not a Putin uberloyalist. FSB chief Aleksandr Bortnikov, Defense Minister Sergei Shoigu, and Security Council Secretary Sergei Ivanov are all considered politically reliable.

So, probably, is Kolokoltsev — but certainly less so than Zolotov, who is currently Kolokoltsev's first deputy and commander of the Interior Ministry's 170,000-strong paramilitary forces.

Dozhd TV's Anton Zhelov cited unidentified defense ministry sources as saying the "probable reason" for Kolokoltsev's vulnerability is that "he is not part of the president's inner circle, and that in the current environment, this is particularly important. Zolotov is the ideal candidate."

Zolotov and Putin go back. They met in the 1990s when both worked for St. Petersburg Mayor Anatoly Sobchak — Putin as deputy mayor and Zolotov as chief of security. Zolotov followed Putin to Moscow and his career has been on an upward trajectory ever since."A former head of Putin’s personal security (and indeed, one of the president’s judo sparring partners), Zolotov has a reputation as a tough loyalist, a 'maximalist' in the words of one Russian cop, whose interests are in protecting his patron rather than necessarily upholding the law," Galeotti wrote.

Indeed, according to Sergei Tretyakov, a Russian security official who defected to the United States in 2000 and died under mysterious circumstances in 2010, Zolotov once made "a list of politicians and other influential Muscovites whom they would need to assassinate to give Putin unchecked power."

Tretyakov's account has never been corroborated. 

Dozhd TV reports that if Kolokoltsev is removed and replaced by Zolotov, it would likely only be after the November 10 Police Day holiday.  

"If this does happen, it’ll be a clear sign that the Kremlin is manning the barricades and preparing for trouble ahead," Galeotti wrote.

Which brings us back to the Rurik dynasty. Its long reign ended in 1598 with the political chaos, civil uprisings, usurpers, foreign occupation, and famine of the Time of Troubles.

Putin has long suggested that, should he leave the scene, this would be the result. But by monopolizing power, eliminating all alternatives, destroying Russia's institutions, and suppressing its civil society, he is making the ground fertile for political upheaval when he does finally go.

And like all mortals, he will eventually go — and that will be his legacy.

SEE ALSO: Inside the "complex" Russian air incursions that have NATO so concerned

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WASHINGTON (Reuters) — Russia has told the United States that it will not attend a 2016 nuclear security summit, the State Department said on Wednesday, in the latest sign of frosty ties between Washington and Moscow.

The bi-annual summit, to be held in Chicago in 2016, aims to enhance nuclear security around the world and, in the past, has involved more than 50 countries including major powers such as China, France, Germany and Britain.

"Russia delivered a demarche to the United States in advance of last week’s preparatory meetings informing us that it no longer planned to participate in the 2016 Nuclear Security Summit," State Department spokeswoman Jen Psaki said.

On Tuesday, US officials said they regretted Russia's decision not to attend last week's preparatory meetings but they did not disclose the Russian decision to skip the 2016 meeting itself, apparently to give Moscow a chance to change its mind.

US-Russian ties have been strained by a host of issues in recent years.

These include Russia's annexation of Crimea from Ukraine in March; its suspected military support for separatists elsewhere in Ukraine; and Moscow's 2013 decision to grant temporary asylum to Edward Snowden, a former US government contractor accused of revealing a massive US intelligence-gathering program.

The last nuclear security summit was in The Hague in March, when Russia and the United States set aside their differences over Crimea to endorse the meeting's final statement.

Psaki sought to put the best face on the Russian decision to skip the Chicago nuclear security summit, a signature foreign policy initiative of US President Barack Obama that is being held in a city where he has a home and began his career.

"The United States and Russia continue to work productively on nuclear security issues through other channels," Psaki said.

"In the wake of the Ukrainian situation, we have still cooperated with Russia on issues of nuclear security and non proliferation as has been visible in our joint efforts on CW (chemical weapons) elimination in Syria and the P5+1 process with Iran," she added.

The P5+1 group, which includes Britain, China, France, Germany, Russia and the United States, is seeking to negotiate an agreement under which Iran would take steps to restrain its nuclear program in exchange for relief from economic sanctions.

(Reporting By Arshad Mohammed; Editing by Chris Reese)

SEE ALSO: Don't expect Putin to ever let go of power

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Kiev said on Wednesday it would halt payment of state funds in areas controlled by pro-Moscow rebels, as both sides hardened positions in what is rapidly becoming a "frozen conflict": a long-term stalemate that the West believes is Russia's aim.

A day after the rebels held inauguration ceremonies for their leaders, the separatists and the central government each accused each other of violating a September peace deal and signaled they would withdraw support for some of its terms.

The past four days have seen the rebels stage elections for leadership which the government called illegal, and the government respond by saying it would revoke a law that would have granted eastern regions autonomy and sent them cash.

Despite a ceasefire declared two months ago, two teenagers were killed by shelling in Donetsk, one of the two separatist strongholds, on Wednesday as they played football on a school sports field, the city's administration said.

The rebels say their newly elected leaders must be allowed to negotiate with Kiev directly; Kiev says this is impossible. Both sides' positions reverse parts of the 12-point peace plan, the Minsk protocol, agreed in Belarus in September.

With Kiev lacking the military might to break the rebels by force, Western allies now fear that a large chunk of Ukrainian territory will become a Russian protectorate with a parlous economic future, beyond the writ of the central government.

"We have now realistically entered the phase of a 'frozen conflict'," said Yury Yakimenko, a political analyst at Ukraine's Razumkov political research center, using a term often applied to other ex-Soviet republics where separatist enclaves have been protected by Russian troops since the early 1990s.

The American general who serves as the highest ranking NATO officer also said this week that the conditions for a frozen conflict were being created in Ukraine.

KREMLIN PLAYBOOK

Russia seized and annexed Ukraine's Crimea region in March, but has been more ambiguous about its intentions in eastern Ukraine, where it has supported separatist rebels but has not recognized their declarations of independence.

So far this week Moscow has stopped short of recognizing the rogue elections held in Ukraine's east on Sunday which elected leaders of two rebel "people's republics" that jointly call themselves "New Russia".

Western governments see the votes as part of a scenario, worked out in the Kremlin, to perpetuate instability in Ukraine after the ex-Soviet republic of 46 million shifted policy westwards following the overthrow of a Moscow-backed president.

Kiev and the West fear Russian President Vladimir Putin's grand design, following the annexation of Crimea in March, is to render Ukraine ineligible to become part of mainstream Europe, with a conflict left unresolved within its borders.

"Russia will direct its efforts at supporting instability, at hindering the creation of Ukrainian law-based institutions and at increasing permanent instability," Yakimenko said.

Russia has dismissed such suggestions and accuses the West of stoking the crisis by staging an "anti-constitutional coup" in Kiev in February after months of street protests against a president who spurned a trade pact with the European Union.

Moscow denies sending in troops and weapons to support the rebels, although many of its soldiers died there, especially in August when Western governments say Russia dispatched armored columns to protect the rebels from the defeat.

Ukrainian President Petro Poroshenko said on Tuesday the rebels had violated the Minsk agreement by holding elections outside Ukrainian rules, and that he would ask parliament to suspend a law that would give their regions a "special status".

The rebels said this "seriously damaged" the Minsk protocol and signaled they would no longer abide by it.

The "special status" law would have given the two rebel regions Donetsk and Luhansk rights to elect local officials under Ukrainian law, offered separatist fighters freedom from prosecution for acts on the battlefield and guaranteed the flow of state funds to rebel-held areas until peace was restored.

Poroshenko said he wanted the law scrapped because he did not want to keep funding terrorists. The rebels had violated the Minsk agreement by breaking the ceasefire and failing to carry out prisoner exchanges, he said on Tuesday.

Prime Minister Arseny Yatseniuk told a government meeting that Kiev would continue to supply gas and electricity to the separatist regions but "so long as the territories of Donetsk and Luhansk regions are controlled by imposters, the central budget will not send funding there."

The cut-off of funding would deprive the war-shattered rebel-held regions of money for schools, hospitals and infrastructure. Pensions are still being paid into accounts of retired workers in rebel held areas, but banks there have been cut off so recipients must move to other parts of Ukraine to collect.

Despite the ceasefire, more than 100 Ukrainian soldiers have been killed since the truce came into force. A 'hot phase' is still going on. There is no 'frozen conflict' here.

Both sides say they are still committed to continuing the Minsk peace process. Poroshenko has said he will propose a new law to provide a "special economic zone" for the east and set a new date for hoped-for Ukrainian-run local elections, originally planned for early December.

But Kiev looks unlikely to agree to talks with separatist leaders as this would imply Kiev's formal recognition of them, and staging Ukrainian-approved elections in their territory seems impossible. 

ISOLATING THE SEPARATISTS

Kiev appears to be aiming now to isolate the separatist leadership rather than break it. The message on Wednesday was that the rebel leaders may have to turn to Moscow now for cash handouts and subsidies to finance their breakaway aspirations.

This is a risky strategy as it could be seen as Kiev abandoning Ukrainians living in rebel-held areas. But Poroshenko is not expected to order a new military offensive, despite issuing a decree on Wednesday that would raise defense spending to 3 percent of gross domestic product from 1 percent.

Ukrainian troops suffered big losses in August when they were cut off by separatists Kiev said were backed by Russian troops. Despite the ceasefire, more than 100 Ukrainian soldiers have been killed since the truce came into force.

"A 'hot phase' is still going on. There is no 'frozen conflict' here," said Taras Berezovets of the Berta political research center.

Kiev's military effort now puts less emphasis on taking back the Donetsk and Luhansk rebel strongholds than on protecting other cities from any further Russian-backed assault.

Poroshenko said on Tuesday he was sending newly formed units to cities including Mariupol on the Sea of Azov, a possible strategic target since it lies on a coastal route from the Russian border to Crimea.

In a decree made public on Wednesday aimed at strengthening the state's defenses, Poroshenko also ordered the government to work on a new model for guaranteeing national security, and re-introduced an old Soviet-era practice of providing basic military training in schools.

(Additional reporting by Natalia Zinets and Alessandra Prentice in Kiev and Alexander Winning in Moscow; Writing by Richard Balmforth; Editing by Peter Graff)

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Since September 2012 Russia has been quietly building up its gold reserves, hitting 1,149.8 tonnes last month — it's highest level since 1993. In the process the country has overtaken both Switzerland and China on its way to amassing the sixth largest gold reserve pile in the world.

This was part of a sensible strategy to diversify its foreign exchange reserves (currently $439 billion in size), which were overwhelmingly held in dollars and euros. Despite the huge increase, gold still accounted for only 9.7% of the country's total reserves as at the end of June — though recent spending by the central bank to defend the rouble is likely to have increased its share.

On Wednesday, Kseniya Yudaeva, deputy chairwoman of Russia's central bank, promised to sell the country's gold to fund imports"if it becomes necessary". The worry is that the country may struggle to fund imports due to sharp falls in the value of the currency, international sanctions over Ukraine, and a flagging economy.

Russia's international reserves have fallen from $509 billion at the start of the year to $439 billion at October 24, as the central bank has bought roubles to soften the currency's decline against the dollar and the euro. This has raised concerns that, if sanctions continue and the country's reserves fall further, it could threaten the country's ability to import crucial goods and services.

Russia's former finance minister and current chairman of the Committee of Civil Initiatives Alexei Kudrin raised alarm bells last month when he wrote a blog in the daily newspaper Kommersant warning that available reserves could barely cover six months of imports at current prices.

Six months of Russia's imports are worth approximately half of the current level of international reserves, which are valued at around $454 billion. If we subtract the reserves used to insure the government's budget, the remaining value of reserves only slightly exceed the amount needed to pay for six months of imports.

Six months is the critical level to insure the Russian population against the possibility of severe hardship in case the crisis deepens and they are deprived of foreign goods. (Russia imports a large amount of staples including butter, cheese and meat.) With reserves now closer to $430 billion, it is highly likely that this level has been breached. Yudaeva may therefore be suggesting that the central bank would be willing to sell gold to generate enough dollars to insure the government's budget to fund imports.

Unfortunately for the government the announcement could not have been worse timed. Gold is getting crushed. It hit $1,140 per ounce on Wednesday, down by about 2.3%. At one point it got as low as $1,137, its lowest level since April 2010. Selling into a falling market would fail Investing 101.

The fact that it was raised, however, demonstrates just how nervous markets are about the country's fortunes with oil prices remaining below the $90 level required to balance the country's budget. Oil and gas revenues still account for almost half of Russia's federal budget along with 10% of the country's GDP.

Russia's Ministry of Finance is set to propose spending cuts of about 10% of the country's budget for 2015-2018. Finance minister Anton Siluanov said that although the government could dip into its reserve fund to meet its spending commitments, "reserves are not infinite, and the poor economic situation may be protracted".

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For the second straight year, Russian President Vladimir Putin was named the World’s Most Powerful Person by Forbes magazine. Leading international counterparts like Barack Obama and China's President Xi Jinping, Putin takes the lead based on "an evaluation of hard power." 

This year, Putin annexed the multi-ethnic peninsula Crimea, engineered a war in Ukraine, and signed off on the world's largest construction project, a $70 billion gas pipeline deal with China.

Furthering geopolitical uncertainty, Putin has made casual references to Russia's approximately 8,484 nuclear warheads in a move that many analysts speculate as a clear challenge to NATO member states. 

The Russian air force has been particularly active since 2013, carrying out simulated attacks on both Stockholm and North America. In the end of October, NATO jets intercepted 26 Russian aircraft in two days — an unusual level of Russian activity. 

Putin hasn't been shy about throwing his power around this year, engaging in high-risk tactical and strategic gambits and using Russia's natural gas and oil wealth to lessen the political and economic consequences of his aggressive decision-making.

The following map depicts the larger confrontation between Russia and NATO and the possible return to Cold War power dynamics in Europe — something Putin's helped usher in over the past year.

Russia has already declined attendance at the bi-annual 2016 nuclear security summit held in Chicago, according to a Reuters report. 

Aside from a focus on hard power, Putin has given his rule an increasingly anti-Western ideological bent. In October, Putin gave one of the most anti-American speeches of his career in which he accused the US of a double standard of the world order. 

"We did not start this," Putin said before charging the US with trying to "remake the whole world based on its interests." 

Throughout the entirety of the Ukraine crisis, Putin has accused the US and other western powers of organizing a coup that put alleged anti-Russian "fascists" in control of the government in Kiev. Putin has charged the US with having a double standard over its intervention against Serbia in support of Kosovo's ethnic Albanians in the 1990s. 

Putin has decried that if the US can intervene in the world as it sees fit, then Russia can also do as it pleases. 

"The bear will not even bother to ask permission," Putin said in a speech last month. "Here we consider it the master of the taiga. It does not intend to move to any other climatic zones. However, it will not let anyone have its taiga either."

Forbes ranked President Barack Obama as the second most powerful person in the world, just behind Putin.

Third place went to Chinese President Xi Jinping, fourth was Pope Francis, and German Chancellor Angela Merkel was fifth. There are 12 new figures on the list including Indian Prime Minister Narendra Modi (15th) and ISIS leader Abu Bakr al-Baghdadi (54th).

SEE ALSO: Putin's Ukraine strategy is straight out of 'Game of Thrones'

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U.S. prosecutors have launched a money-laundering investigation into a member of Russian President Vladimir Putin's inner circle, the Wall Street Journal reported on Wednesday, citing people familiar with the matter.

According to the report, the U.S. Attorney's Office for the Eastern District of New York is probing whether billionaire Russian gas trader and Putin associate Gennady Timchenko transferred funds related to allegedly corrupt deals in Russia through the U.S. financial system. The Justice Department is aiding the investigation, it said.

The prosecutors are investigating transactions in which Gunvor Group, a commodities firm founded by Timchenko, bought oil from Russia's OAO Rosneft and sold it to third parties, the newspaper reported.

The report said that the transactions predate U.S. sanctions against Russia introduced in March on Timchenko and others over the Ukraine crisis. Timchenko is also co-owner of Russia's No. 2 gas producer Novatek.

Transfers of funds related to the transactions could constitute illegal money laundering if the funds were found to have originated from illicit activity such as, for example, irregular sales of state assets like oil, the newspaper said.

The newspaper cited one source as saying the probe is also examining whether any of Putin’s personal wealth is connected to allegedly illicit funds.

The U.S. Treasury has said that Putin has investments in Gunvor and may have access to Gunvor's funds. Both the company and the Kremlin have strenuously denied those allegations.

Timchenko, Gunvor, the U.S. Attorney Office and the Justice Department could not be reached out for comment outside the regular U.S. working hours.

(Reporting by Anjali Rao Koppala in Bangalore; Editing by Cynthia Osterman)

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While attention has been focused on the European Central Bank today, Russia's currency has been quietly continuing its collapse crossing a new record low of 46 roubles to the dollar. It has now fallen by more than 25% since its June peak — winning it the unfortunate title of the world's worst performing currency this year.

When you look at its performance over the past 10 years it looks even worse:

The rouble's collapse has continued into its fifth month after the Russian central bank effectively threw in the towel by announcing the "abandonment of unlimited foreign exchange interventions" on Wednesday. Its move comes after the central bank spent $26 billion buying up roubles in October in an effort to halt the currencies slide against the dollar and the euro.

According to Credit Suisse, at the start of the year market consensus was for an average level of 34 roubles to the dollar through 2014, within a range of 32.25 to 36.7. That prediction has now been completely blown out of the water by the events of the past six months.

Falling oil prices have been widely blamed for the rouble's performance. Brent crude oil has fallen from a June high of $115 a barrel to just over $82 a barrel on Thursday — a 28.7% fall — on the back of flagging global demand and surprisingly strong supply growth.

The Organisation of the Petroleum Exporting Countries (OPEC), which supplies 40% of the world's oil, cut its outlook for demand for its oil in every year to 2035 (except for next year where it forecasts a small rise). This reflects much higher than expected output from America's shale oil fields.

What it means for Russia is that oil prices are likely to remain lower than expected, putting additional pressure on a country that still relies on oil and gas revenues to fund half of the government budget and 10% of GDP. Foreign investors, who have already been fleeing Russia in the first 10 months of this year, are unlikely to be reassured by this latest news and could add further pressure on the rouble over the coming months.

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