The Banking Crisis is a Source of Satisfaction for Putin

The crisis in the banking systems of the United States and Europe is providing an opportunity for Russian President Vladimir Putin to strengthen his narrative surrounding the conflict in Ukraine. Putin aims to demonstrate that the West is in decline and will not be able to provide long-term assistance to Ukraine. Although Russia's banks are not as affected by the crisis as those in the West, Putin has already faced significant economic challenges due to the war and sanctions. However, it is unlikely that Western countries will halt their support for Ukraine, as their stance on the conflict is not solely based on financial reasons. As the banking crisis deepens, the West may become more preoccupied with their own economic struggles, potentially creating an opening for Putin to advance in Ukraine without significant opposition.

The latest financial crisis affecting the banking sectors in the United States and Europe serves as an opportunity for Russian leader, Vladimir Putin, to further emphasize his stance on the war in Ukraine. Furthermore, Russian banks seem to be protected from any possible consequences that may arise from it.

In the recent week, trust in the American banking system decreased quickly due to two of the biggest banking collapses in U.S. history. The Swiss National Bank was also forced to rescue Credit Suisse, one of Switzerland's notable banks, from failure. Economists cautioned that if a bank like Credit Suissse crumbles, it could trigger a significant economic crisis, including a possible effect on Russian oil. While people in Western nations were frightened, Putin saw this as a chance.

According to Michael Kimmage, a former staff member at the State Department who specialized in Russia and Ukraine affairs, Putin desires to showcase the chaos in the United States and Europe. This chaos could manifest in various forms, such as protests like those seen on January 6th, divisions within governments, or economic hardships. Putin's objective is to prove that the West is in decline and cannot sustain long-term support for Ukraine.

According to Kimmage, the story doesn't necessarily have to be accurate. However, it's a story that he desires to create, and these types of happenings can be beneficial for the Russian populace.

After sanctioning Russia for the Ukrainian invasion last year, Putin has declared that the West is losing power and has focused on building stronger connections with Eastern countries such as China and Iran. He has used this message to allay Russian concerns about sanctions from Western countries. The West's action to separate Russia financially could potentially reinforce Putin's message.

On Thursday, the Swiss central bank came to the aid of Credit Suisse to prevent the bank from collapsing due to the increasing risk of default. However, according to Gary Hufbauer, a nonresident fellow at the Peterson Institute for International Economics, even if Credit Suisse were to fail and cause an economic crisis in Europe, it would not have a significant impact on Russian banks or their financial system. Due to a year of sanctions and economic isolation, Russian banks are now protected from Western influence.

During the month of June, the leader of Russia criticized the United States and their allies by stating that they are still living in the past and believing that they are superior to everyone else. He referred to the imposed sanctions as irrational and dangerous. In the previous month, while giving a speech commemorating one year of the war, Putin accused the Western world of using Ukraine's sovereignty as a distraction from their own internal issues of corruption. Additionally, he placed full responsibility for the conflict on the West, Ukrainian elite, and their government.

Even though Russia may seem to have some benefits from being isolated from European banks, Nouriel Roubini, the CEO and chairman of Roubini Macro Associates, has stated to Newsweek that it's crucial to acknowledge the significant economic downturn the country has already experienced due to the war and initial effects of sanctions.

Russia has long been a major player in the oil industry, ranking among the top three producers. However, sanctions imposed by the U.S. and European Union on Russian oil caused prices to skyrocket by over $120 a barrel due to concerns about supply shortages. In the event of a severe economic crisis, experts such as Roubini and Hufbauer predict that oil and gas prices would sharply decline, causing additional harm to Russia's struggling economy.

According to Roubini, the current state of Russia's economy is already chaotic, so any additional information is not significant.

According to reports, Putin has announced that the Russian GDP witnessed only a decrease of two percent in 2022. However, experts are raising concerns that the Kremlin may have been manipulating data as a tactic within its "information war."

According to a recent analysis by Agathe Demarais, the global forecasting director at the Economic Intelligence Unit, the Kremlin relies heavily on selective forecasts that are presented as facts, despite being significantly different from the opinions of other experts in the field. Additionally, Moscow tends to withhold statistics that do not align with its desired narrative.

According to Demarais, it is probable that the decrease in Russia's GDP will be adjusted to approximately three or four percent. The optimal growth of GDP is within two to three percent.

Despite Putin's continued backing of the war on Ukraine, the people of Russia are starting to feel the financial repercussions of the conflict. According to a recent survey conducted by Chronicles, a research organization in Moscow, individuals who have been negatively affected by the war are becoming increasingly unsupportive of it. Aleksei Miniailo, an opposition politician in Russia who founded Chronicles, has stated that this economic fallout is beginning to impact Putin's ability to spread propaganda.

Although Moscow claimed a swift triumph, they have faced difficulties in attaining significant progress in Ukraine. They were unable to capture Kyiv, which resulted in the mobilization of 300,000 Russian troops for the war effort. Presently, Ukraine is directing all its resources towards protecting Bakhmut, with the hope of reclaiming the crucial land by spring. However, Western representatives express concern over the constant bombardment and its sustainability.

Kimmage pointed out that Russia has been negatively affected by how the world sees the harm being done to civilians in Ukraine. Therefore, the focus on a worldwide economic crisis could serve as a diversion to divert attention away from those upsetting images.

According to Kimmage, although Putin won't solve his problem with this crisis, people will start to concentrate on other issues. The poor military performance of Russia and the pain that Russia is inflicting on civilians will not be the point of attention. Therefore, it will be beneficial for Russia.

There are concerns that Ukraine might run out of ammunition, meaning it will need help from its allies. However, if European nations start worrying more about their own financial situations, public opinion on providing assistance to Ukraine could shift. When people are struggling at home, they may not be as keen on sending aid to another country. This could potentially create an opening for Putin to make gains in the battle.

According to Alessandro Rebucci, an associate professor at Johns Hopkins University specializing in international finance and macroeconomics, Europe will face economic weakening due to the financial crisis. This will cause difficulty in continuing to fund the war effort.

The EU has experienced similar issues with Ukrainian expenses in the midst of other financial troubles, causing frustration among Europeans. This is not a new problem for the EU as demonstrated by the approximately 70,000 individuals who protested increased energy expenses in the Czech Republic's capital, Prague. Additionally, residents in Italy, Germany, and Spain have also expressed similar worries and have protested in their respective countries.

Despite the challenges faced, Kimmage and Rebucci noted that it is improbable for Western nations to change their backing for Ukraine. This is because their stance on the conflict has been influenced more by political factors than economic ones, as seen over the past year.

Kimmage stated that he cannot envision President Biden or any Western European leaders altering their perspective on the war just because of some bank failures, even though these failures are substantial. However, these failures are currently only limited to SVB and Switzerland.