WASHINGTON -- As Russia’s currency plunges, the Obama administration is delivering a message about the impact of Western sanctions: We told you so.
"We have suggested the longer the sanctions regime is in place, the more isolated the Russians would be and the greater the impact it would have on the broader Russian economy,” White House spokesman Josh Earnest said on December 16.
“And every week and month that goes by that the sanctions regime is in place, we see that the toll that is being taken by the Russian economy grows," he added.
Earnest’s comments came as the Russian ruble fell in value against the dollar and the euro earlier in the day.
The White House launched a wave of financial sanctions targeting top Russian officials and companies after the Kremlin’s annexation of Crimea in March and has repeatedly insisted the punitive measures are exacting a cost on Russia, even as Western nations accused Moscow of continuing to supply troops and materiel to pro-Russian separatists in eastern Ukraine.
Analysts attribute pressure on the ruble, which has shed around 50 percent of its value against the dollar this year, and the Russian economy largely to plummeting oil prices.
Russia’s central bank this week projected the economy could shrink next year by 4.5 percent should the price of oil average $60 per barrel. The price for benchmark Brent oil closed below that threshold on December 16, its lowest level since July 2009.
But Obama administration officials stressed on December 16 that the sanctions regime is contributing to Russia’s deepening economic woes as well.
"The combination of our sanctions, the uncertainty they've created for themselves with their international actions, and the falling price of oil has put their economy on the brink of crisis," said Jason Furman, chairman of the White House’s Council of Economic Advisers.
It is far from clear whether the financial squeeze being felt by the Kremlin will prompt Russian President Vladimir Putin to change course.
The Ruble's Volatile Two Decades
The Soviet Union's final years saw the government grappling with a flailing economy and introducing monetary measures that sparked panic in the populace.
In January 1991, Soviet leader Mikhail Gorbachev issued a decree voiding all 50- and 100-ruble notes in a bid to crack down on black-market currency dealers. Soviet citizens were given just three days to trade in their old notes, prompting angry mobs to descend on banks unprepared to handle the scale of the operations.
Later that year, the government slashed the ruble's value under the "tourist rate" -- offered by state banks to foreigners and Soviet citizens traveling abroad -- from around 6 rubles to around 27 rubles to the dollar. The ruble continued to tumble for the rest of the year as the dollar increasingly became Russians' currency of choice. By early December 1991, the ruble was valued at nearly 100 to the dollar. Later in the month, the Soviet Union ceased to exist.
The skyrocketing inflation under the Yeltsin government's free-market "shock therapy" reforms following the Soviet collapse saw millions of Russians lose their savings and the ruble weaken steadily over the course of several years.
In January 1994, the government banned domestic use of the U.S. dollar and other foreign currencies for purchases of goods and services in a bid to halt the ruble’s slide. In October of that year, the ruble plummeted 27 percent in a single day of trading that became known as "Black Tuesday" before the central bank stepped in to prop up the national currency. Before the Russian government lopped off three zeroes from the ruble in January 1998, a single U.S. dollar was worth around 6,000 rubles. Following the move, $1 was worth 6 rubles.
After Russia defaulted on its debt and effectively devalued the ruble in August 1998, numerous Russian banks collapsed and ordinary citizens watched their savings vanish. In less than a month, the ruble plunged from 6 to 16 versus the dollar, eventually stabilizing at around 24 rubles to the dollar. Inflation for the year soared to 84 percent, while Russia’s GDP declined by 4.9 percent.
The 1998 crisis spawned a drastic decline in imports to Russia as the ruble weakened, though the devaluation strengthened demand for domestic production seen as crucial in the country's quick rebound from economic calamity.
After nearly a decade of strong economic growth on the back of lofty oil prices, both Russia's economy and the ruble were hit hard by the 2008 global economic crisis, in part due to falling energy prices. In early August of that year, the ruble was trading at a high of 23.4 to the dollar but shed 35 percent of its value against the dollar by January 2009.
The Russian government embarked on a policy of "controlled devaluation" to deal with the crisis, using foreign reserves to temper the ruble's decline. Russian President Vladimir Putin, serving as prime minister at the time, said the policy was aimed at giving Russians the opportunity to "decide what they should do with their savings."
But U.S. Secretary of State John Kerry said on December 16 that Russia has made “constructive moves” in recent days in the standoff over Ukraine, where Western governments accuse Moscow of backing the rebels in eastern Ukraine.
Kerry cited “the withdrawal of certain” people and the “calm that is in fact in place in a number of places” in eastern Ukraine but did not elaborate.
U.S. State Department spokeswoman Jen Psaki told reporters in Washington that the United States welcomes reports “that violence has decreased markedly over the last few days in eastern Ukraine.”
“This is a positive step and an opportunity to advance the prospects for a lasting political solution,” Psaki said. “But I don’t want to overstate that, nor do we, and that’s one of the reasons why [Kerry] also reiterated ongoing concerns we have.”
Speaking in London, Kerry said the Western sanctions against Russia are “clearly intended to invite President Putin to make a different set of choices.”
"These sanctions could have been lifted months ago, these sanctions could be lifted in a matter of weeks or days," he said.
Meanwhile, Earnest told reporters on December 16 that Obama will sign a bill passed unanimously by Congress last week that introduces new sanctions against Russia but gives the White House the authority to waive them.
Putin will have an opportunity to address the economic turmoil and sanctions in his annual televised press conference slated to be held on December 18. In a confrontational state-of-the-union speech earlier this month, Putin accused unnamed “speculators” for the ruble’s slide.
Steven Pifer, a former U.S. ambassador to Ukraine, said the likelihood of Russia budging in the Ukraine impasse could depend on how the Kremlin perceives the goal of Western sanctions.
If top Russian officials see the removal of the sanctions regime as part of the solution to its current economic troubles, “that should be an incentive to get the Kremlin to change its course on Ukraine," Pifer, now a senior fellow at the Brookings Institution, told RFE/RL.
“If the Russian leadership has bought into their own line that the point of sanctions is simply to bring down the Putin government, then it’s going to be hard to get a change in policy,” he said.
Sanctions have cut off major Russian companies -- including state-controlled Rosneft, Russia’s largest oil company -- from access credit from Western banks. The Russian oil giant is in need of cash to meet debt payments after purchasing rival TNK-BP for $55 billion in 2013.
In a December 16 tweet, Putin’s former finance minister, Aleksei Kudrin, described a $10.8 billion in ruble-denominated bonds issued December 12 by Rosneft and financed by Russia’s central bank as an “opaque loan” that “negatively heated up the market.”