The ruble is in crisis less than a day after a shocking Russian central-bank rate hike. And Russian President Vladimir Putin has to find a way to explain the mess.
"Putin now needs scapegoats: external and internal," geopolitical expert Ian Bremmer told Business Insider over email. "Everything from the US and Europe for sanctions, Ukraine for the fight against Russia, 'speculators' for the run on the Russian economy, ineffectual policymakers — PM Medvedev surely at risk here too."
Bremmer noted that Russian media tends to parrot Putin's narrative, which helps maintain the president's high popularity at home. As a result, he says, "there's no chance you see serious discussion of mistakes made by Putin that helped cause this crisis."
In March, Putin annexed Crimea and incited a war by giving support to pro-Russian separatists in the eastern part of Ukraine. After the West brought sanctions, Putin doubled down by sending more men and weapons into eastern Ukraine while saying the sanctions were a plot to oust him from power.
In the meantime, more than $85 billion in capital and droves of talented people have left Russia this year, and the country's economy is headed for a prolonged recession.
Russia officially a submerging market.
— ian bremmer (@ianbremmer) December 16, 2014
Bremmer said that capital controls — i.e., protections against Russian citizens and businesses withdrawing money from banks — are "looking more likely in this environment."
In any case, the simultaneous crashes of oil prices and the ruble have challenged Putin to either back down to get some relief, or double down again.
"The best thing for the economy — short of an oil price rise, which the Kremlin has no influence over — would be to negotiate a settlement with Ukraine and climbdown the escalation," Bremmer said. "But that flies against what's actually sustained Putin's popularity ... and the primary driver of his entire strategy for the past year."
Bremmer doesn't see Putin changing his ways.
"That's why this is a geopolitical problem more than an economic one," he said. "Oil at $50 is a serious problem for Putin; oil at $50 & sanctions is a better narrative. And Putin's response is likely to geopolitical as well ..."
By far the biggest geopolitical downside of oil prices tanking: pushing Putin into a corner.
— ian bremmer (@ianbremmer) December 16, 2014Bremmer noted that Putin's options include more cyberattacks, "more aggression/incursion around NATO borders, excuses found for expansion of military engagement beyond present zone in Russia, [and] closer ties/integration with China."
Russian planes have been very active in the Baltic region in the past few months and are regularly intercepted by NATO planes. The Russian military also just carried out snap drills in the Russian exclave of Kaliningrad, which borders Lithuania and Poland.
"Potential for 'accidents' [is] going way up," Bremmer added.
This post has been updated.
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