Russian people face 'catastrophe' as ruble crashes and sanctions bite
Everyone expected the Russian attack would be devastating for Ukrainian lives and businesses, but Canadians who study Russia and its economy say they have been startled by the invasion's catastrophic impact on Russians thanks to sanctions imposed by Western nations.
A plunging currency, a doubling of interest rates, empty shelves, a closed stock market, lineups at banks that are in danger of going broke — Canadian Russia-watchers say the repercussions of the invasion on Ukraine are affecting Russians at every level and are only now being understood.
One question everyone is asking is whether this will weaken President Vladimir Putin's grip on power.
"I think it's a catastrophe all around, but I think it is a catastrophe in particular for the common people, for, you know, the regular folks," said Norman Pereira, whose family escaped through China from the St Petersburg area in 1919 during the Russian Revolution.
The 80-year-old professor emeritus of Russian studies and history at Halifax's Dalhousie University still has family in Russia whom he keeps in touch with and is married to a Russian. Pereira, whose name is of Sephardic Portuguese origin, says the crash in the ruble and other economic impacts are already beginning to plague every aspect of life — and that's apart from battlefield casualties.
Like others I spoke to, Pereira was surprised by the brutality of the invasion, the weight of Western sanctions against Russia and the widespread consequences for the Russian economy.
"I misread the situation, I didn't think Putin would act so rashly. It's a disaster, a tragic mistake," he said in a phone conversation on Monday. "That may be putting it too kindly."
Pereira says that in a country where more than half of the population
live on $6,000 US or less a year, it is the poorest who always suffer the most. But he says the growing middle class, especially in St. Petersburg and Moscow, has also been hit hard by the sanctions.
"The sanctions may not affect the people at the top very much, but it's going to affect the middle class, and it'll affect the people in the countryside. They're always the ones who take the brunt of it anyway."
In a country
whose leader has become increasingly dictatorial, it is hard to see how a revolt by the middle class could make Putin relinquish his hold on power. Despite that, many — including Russian chess grandmaster and human rights activist Garry Kasparov — have proposed that the only real solution to the current crisis is
the fall of the Putin regime.
Economist Dane Rowlands, a professor at Carleton University's Norman Paterson School of International Affairs, was also surprised by the power and effect of Western sanctions on Russia.
"They've gone a lot further and a lot quicker than I thought they would in terms of the breadth of the sanctions," he said on Monday. "They've really only left one remaining door open, and that's the financing of oil and gas purchases for the European countries."
Rowlands was also surprised that the Russian central bank was not expecting to see its overseas reserves cut off — one more bit of evidence that Putin underestimated the global reaction to his moves on Ukraine.
For the Russian economy, huge oil and gas resources have turned out to be a liability as well as an asset now that many foreign imports have been halted by sanctions. Sometimes seen as part of the phenomenon called the "
resource curse," an economy can become so dependent on its wealth from a single source that it does not do enough to diversify. Instead,
like Venezuela during the boom years, it buys what it needs.
Now, Rowlands says, with many imports cut off and the ruble falling sharply in value, store shelves are emptying.
"Russia obviously produces a lot of its own stuff, but they don't produce that much in the sense that it's a very resource-dependent country," he said. "They sell that stuff, and they buy what they want from outside."
It's not just consumers who have been affected but also industries, including oil and gas, that depend on imports of foreign parts and electronics cut off by sanctions and by restrictions on flights. Eventually, Rowlands says, those needs could be replaced by Chinese goods, but
as North Americans have discovered, switching to a new source when supply chains break down is neither quick nor easy. Developing new supply lines is a task of years, not weeks or months.
Like Pereira, besides demonstrators, Sundstrom worries most about people at the lower income levels. People with debt, for instance, will now be burdened by central bank interest rates that have doubled to more than 20 per cent. Rising prices due to "massive" inflation will be devastating, she says, especially for people on government incomes or pensions.
"They're already not really enough to live on, but now they're going to be more and more useless over time," she said.
But Sundstrom says it's not just poorer Russians who are feeling the effect of sanctions. The many middle-class Russians who have grown used to being able to travel around the world will be stuck at home.
She says many ordinary people she knows have foreign bank accounts, and now they have lost access to them, while businesses can't get access to the capital they need. This time, Sundstrom says, Putin may have angered too many.
"I think that even within the inner circle — other than the most militant hard core people who are advising him — many people in the cabinet, many parliamentarians are going to start distancing themselves from him," she said. "He seems unhinged."