After a week in which the Russian ruble cratered to record lows and plummeting oil prices further rocked the Russian economy, President Obama gave an interview to CNN on Sunday, implicitly taking credit for knocking Russian President Vladimir Putin down a few pegs on the world stage.
In the spring, when oil was still trading at more than $100 per barrel and Russian soldiers were consolidating control over Ukraine’s Crimean peninsula, Putin seemed to stand astride Eastern Europe, an outsized figure on the world stage, unconcerned about scolding from the United Nations and the world as he expanded his country’s borders at his neighbors’ expense.
Related: Can Financial Contagion in Putin’s Russia Spread West?
At the time, President Obama’s political opponents were practically standing in line to compare him unfavorably with the Russian president.
“In a way, you gotta hand it to Putin,” said Fox News host Bill O’Reilly. “He knows the West is weak.”
“Putin decides what he wants to do and he does it in half a day,” said former New York mayor and Republican presidential contender Rudy Giuliani. “He makes a decision, and he executes it, quickly. Then everybody reacts. That’s what you call a leader.”
Obama’s appearance Sunday came just six days after the Russian Central bank, desperate to save the ruble, hiked interest rates from 10.5 percent to 17 percent in the dead of night. The effort failed. Major global brands began refusing to sell their wares in Russia as citizens rushed to buy the consumer goods that might hold their value better than the ruble.
Related: Putin’s New Storyline – Oil Shock Has Silver Lining
In the interview, CNN’s State of the Union host Candy Crowley gave President Obama a chance to respond to critics who, a few months ago, had been praising Putin for, if not his specific actions, then his leadership qualities. The implication, Crowley said, was that Obama was a sort of foreign policy naïf, who had been “rolled” by the Russian president.
“There was a spate of stories about ‘He was the chess master, outmaneuvering the West and outmaneuvering Mr. Obama’ and this and that and the other,” Obama said dismissively. “Right now, he’s presiding over the collapse of his currency, a major financial crisis and a huge economic contraction. That doesn’t sound like somebody who had rolled me, or the United States of America.”
Obama added a criticism of opponents who had been angry his administration hadn’t been more forceful in its initial response to Russia.
Related: Putin’s Ruble Troubles Start Crossing Borders
“There is this knee-jerk sense, I think, on the part of some in the foreign establishment that shooting first and thinking about it second projects strength,” he said. “I disagree... We have been very firm with respect to those countries we think are violating international law or are acting against our interests.”
The implication was that U.S. leadership on the international stage, by rallying allies to apply sanctions to Russia, is what brought the Russian bear to its knees.
In actuality, the financial and economic sanctions the administration and its European Union partners applied to Russia did not, and were never meant to, do the kind of damage the Russian economy has suffered these past few weeks.
The initial sanctions were meant to punish Putin’s inner circle by depriving them of the ability to move money internationally, and they were later expanded to crimp certain business sectors. As they slowly ramped up, they began to bite the general public by making some consumer goods harder to come by, and taking a modest toll on the ruble.
Related: Putin Urges Oligarchs, Criminals to Bring Dirty Money Back to Russia
This was all according to plan. The idea was to cause economic pain so that the Russian government and its people knew they were paying a price for the invasion of part of Ukraine.
The idea was not to push Russia into an economic collapse with the potential to destabilize large parts of Europe. That, however, is what has happened. In the last several weeks, the Russian GDP has been cut in half. The average Russian’s purchasing power – when he or she can even find the desired goods – has been similarly slashed.
Most of the damage is due not to sanctions but to oil’s plunging price, which is the mainstay of the Russian economy and over which Obama and other world leaders had no control. Most estimates suggest the international sanctions are responsible for 20 to 30 percent of the overall damage.
It’s impossible to say, of course, what would have happened if the sanctions had been applied but oil prices had remained stable. However, before oil began its plunge, the Russian Central Bank held hundreds of billions of dollars in foreign reserve currency – more than enough to protect the ruble against most threats.
Related: 5-Year-Low Oil Price Plunge Adds Pressure on Putin
President Obama may be claiming credit, if only implicitly, for the Russian disaster, but the truth is it’s a self-inflicted wound. For years, Russia has known its economy is fatally dependent on the price of oil. The Russian economy tanked when OPEC nations flooded the market with excess oil in the mid 1980s, and in the aftermath its leaders did nothing to protect the country against another plunge in oil prices in 1998, which caused Russia to default on its debts.
WHY THIS MATTERS
Applied correctly, economic and financial sanctions work. However, they didn’t bring the Russian economy down – global economic conditions did. It’s important for the public not to have an unrealistic view of what sanctions can accomplish.
Today’s crisis is essentially a repeat of the prior two. Russia had evidence showing it’s overly vulnerable to oil shocks, but did precious little between 1998 and 2014 to diversify its economic base, which might have helped protect it.
Considering that that 16-year stretch is coincident with the reign of Russian President Vladimir Putin, it’s fairly clear who really deserves the credit – or blame – for Russia’s current condition.
Top Reads from The Fiscal Times:
