New York University's independent student newspaper, established in 1973.

Washington Square News

New York University's independent student newspaper, established in 1973.

Washington Square News

New York University's independent student newspaper, established in 1973.

Washington Square News

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Adam’s Angle: Putin must heed international counsel or face economic disaster

It is easy to accept the false notion that all is well under Putin’s leadership considering his domestic approval rating has improved since the Olympics and the Ukraine crisis. But the Russian economy has already seen the negative effects of Putin’s intervention in Ukraine — its stock market is struggling — and the situation will only worsen with time. Potential sanctions would cripple the already sluggish Russian economy, which is dependent on its gas exports. Worse still, Putin’s actions are galvanizing European countries to substitute Russia with another natural gas exporter or look toward alternative energy sources.

Russia’s economy is stalling. The ruble is one of the weakest currencies of 2014 and has fallen nearly 3 percent against the U.S. dollar in recent months, prompting the Russian central bank to increase its interest rate to 7 percent. Last year, both the International Monetary Fund and the World Bank downgraded their Russian growth projections to under 2 percent, advising diversification away from oil. Between a weak ruble and an unstable stock market, Russia’s economy looks bleak.

The worst is yet to come. Putin has ignored the international community and faces looming sanctions. Current sanctions have targeted individuals and small entities instead of major companies, as Western players are wary of the economic harm more serious restrictions would have on them — the interruption of Russian exports hurts Western nations, too. However, if Putin refuses to negotiate and sanctions on gas exports strengthen, Russia will have the most to lose.

Russia has used its position as one of the world’s largest energy exporters to control Ukraine in the past. Its national gas company Gazprom, which withheld exports to Ukraine in 2006 and 2009, is now threatening to increase prices in the region. While leveraging Russia’s bargaining power may increase Putin’s temporary influence in Ukraine, it can only hurt Russia in the long run. Russia’s aggressive trade behavior has motivated its gas trade partners to look for alternatives, and the recent events in Ukraine may be the tipping point. If the rest of Europe also turns to alternative gas suppliers, the effect on Russia could be profound. In fact, the United States has seen a boom in natural gas with the advent of hydraulic fracking and could be ready for large-scale export to Europe in the near future.

Putin’s continued disregard for international counsel is motivating Europe, especially Ukraine, to explore other sources for natural gas. Unless Putin decides to heed the warnings of Western nations, the damage inflicted on Russia’s economy will only increase. Putin should seriously consider the future of the Russian economy before plotting his next move.

A version of this article appeared in the Thursday, March 13 print edition. Adam Fazlibegu is a staff columnist. Adam’s Angle is published every Thursday. Email him at [email protected].

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  • K

    KennyMar 20, 2014 at 9:23 am

    Great article!

    Reply