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 impacton 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 onUkraine are affecting Russians at every level and are only now being understood.

One question everyone is asking is whether this will weakenPresident 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 areain 1919 during the Russian Revolution.

Collapse plagues every aspect of life

The80-year-old professor emeritus of Russian studies and historyat Halifax's Dalhousie Universitystill has family in Russia whom he keeps in touch with and is married to a Russian. Pereira, whose name is of SephardicPortuguese origin,says the crash in the ruble and other economic impactsare 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 thewidespread consequences for the Russian economy.

"I misread the situation, I didn't thinkPutin would act so rashly. It's a disaster, a tragic mistake," he said in a phone conversation on Monday. "Thatmay be putting it too kindly."

Pereira says that in a country where more than half of the populationlive 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'llaffect the people in the countryside. They're always the ones who take the brunt of itanyway."

In a country whose leader has become increasingly dictatorial, it is hard to see how a revolt by the middle class could make Putinrelinquish his hold on power. Despite that,many including Russian chess grandmaster and human rights activistGarry Kasparov have proposed that the only real solution to the current crisis is the fall of the Putin regime.

One theory, sometimes called the J-curve hypothesis, is that rebellions don't arisewhen people are subjected to continuous grinding povertybut when living standards fall sharply after a period of economic improvement, "when expectations are not fulfilled," said Joan DeBardeleben, who studies relations between Russia and Europe at Carleton University in Ottawa. "I think that makes a lot of sense in this case."

She added, "Of course this is a question of where the anger gets directed." Steered by government propaganda, Russian nationalists may blame damage to their economy caused by things like the sale of shares by Western oil companies and bank runson the forces Putin claims he is fighting in Ukraine.

"So it's not a foregone conclusion that the anger that might result from these kinds of impacts would necessarily be directed at the state authoritiesor towards Mr. Putin himself," DeBardeleben said.

WATCH | Russians feel impact of broadsanctions:

Russian economy buckles under sanctions

3 years ago

Duration 2:06

Asingle door open

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 thanI 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 assetnow that many foreign imports have been halted by sanctions. Sometimes seen as part of the phenomenon called the "resource curse," an economy can becomeso 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 whohave been affectedbut also industries, including oil and gas, that dependon imports of foreign parts and electronics cut off by sanctions and by restrictions on flights. Eventually, Rowlandssays, 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.

Putin unhinged?

Lisa Sundstromis personally affected by the Russian incursion into Ukraine and the resulting sanctions. The University of British Columbia professor studies Russian protest movements.

Her fully funded research project in Russia was interrupted firstby the pandemic. "Now I don't know if I'll ever get back," she said. "But my problems are very small compared to a lot of people."

Russians she has worked with have been demonstrating for peace and have now been arrested as police repression has become more intense.

Like Pereira, besides demonstrators, Sundstromworries 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," shesaid.

But Sundstromsays it's not justpoorer Russians who are feeling the effect of sanctions. The many middle-class Russianswho have grown used to being able to travel around the world will be stuck at home.

WATCH | Ex-officerwho testified at Trump impeachment hearings on Putin's threats:

Ex-U.S. officer Alexander Vindman calls out Putin's 'nuclear sabre-rattling'

3 years ago

Duration 14:32

Retired U.S. lieutenant-colonel Alexander Vindman, a former national security aide who played a central role in the impeachment case against former president Donald Trump, is calling for Western nations to do more to counter Russia's attack on Ukraine.

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, Sundstromsays, 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."

As someone who has been watching the Russian leader and talking to Russians for years, Sundstromsaysthat apart from the progressive pro-democracy elements, Putin has always been so calculatingand so careful to balance different constituencies in the country.

"It looks like he's just abandoned them now, which is pretty dangerous," she said. "But I don't want to count him out yet."

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