Executive Summary

• The 'Perfect Storm' of woe being applied to Russia
• Why the West may end up hurt worse by its efforts than Russia is
• Russia's most likely set of responses, and their global implications
• Why are we willing to let our leaders play nuclear "Russian roulette", for stakes we don't agree with?

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The Perfect Storm

Russia, like Venezuela and other oil exporting nations is facing a very large set of financial and economic problems as a result of the low oil prices. 

Besides the loss of oil export revenues, there are associated hits to their local currencies and rising yields on their sovereign debt which raises the cost of borrowing money.  This is a triple whammy and if it goes on long enough can lead to the outright default of the country on its debt, which is a hugely destabilizing moment. 

Russia faces 'perfect storm' as reserves vanish and derivatives flash default warnings

Jan 6, 2015

Russia’s foreign reserves have dropped to the lowest level since the Lehman crisis and are vanishing at an unsustainable rate as the country struggles to defends the rouble against capital flight.

Central bank data show that a blitz of currency intervention depleted reserves by $26bn in the two weeks to December 26, the fastest pace of erosion since the crisis in Ukraine erupted early last year.

Credit defaults swaps (CDS) measuring bankruptcy risk for Russia spiked violently on Tuesday, surging by 100 basis points to 630, before falling back slightly.

Markit says this implies a 32pc expectation of a sovereign default over the next five years, the highest since Western sanctions and crumbling oil prices combined to cripple the Russian economy.

Total reserves have fallen from $511bn to $388bn in a year. The Kremlin has already committed a third of what remains to bolster the domestic economy in 2015, greatly reducing the amount that can be used to defend the rouble.

(Source)

It's clear that Russia is experiencing quite a bit of difficulty from all this, and as we saw above, they pin a lot of the troubles on a concerted effort by the west to bring about exactly the conditions that are troubling them.