As sanctions batter economy, Russians face the anxieties of a costly war

People wait to use an ATM outside a Sberbank location in Moscow on Feb 28, 2022. PHOTO: NYTIMES

MOSCOW (NYTIMES) - For two decades under President Vladimir Putin, Russians reaped the bounties of capitalism and globalisation: cheap flights, affordable mortgages, a plethora of imported gadgets and cars.

On Monday (Feb 28), those perks of modern life were abruptly disappearing, replaced by a crush of anxiety as sanctions imposed by the West in retaliation for Moscow's invasion of Ukraine rattled the foundations of Russia's financial system.

The rouble cratered, losing one-quarter of its value, and the central bank shuttered stock trading in Moscow through Tuesday.

The public rushed to withdraw cash from ATMs, and Aeroflot, the national airline, cancelled all its flights to Europe after countries banned Russian planes from using their air space.

Concern about travel was so great that some people rushed to book seats on the few international flights still operating.

"I've become one concentrated ball of fear," said the owner of a small advertising agency in Moscow, Ms Azaliya Idrisova, 33. She said she planned to depart for Argentina in the coming days and was not sure whether her clients would still pay her.

Compounding the pain was the decision by Western countries to restrict the Russian central bank's access to much of its US$643 billion (S$872 billion) in foreign currency reserves, undoing some of the Kremlin's careful efforts to soften the impact of potential sanctions and making it difficult for the bank to prop up the rouble.

Other moves struck at the heart of critical Russian industries.

Shell, a company that for years helped Russia profit from its energy riches, said it was exiting all its joint ventures with Gazprom, Russia's largest state-owned natural gas company - following BP's announcement on Sunday that it would sell its stake in the Russian state-run oil giant Rosneft.

Volvo said it would stop production at its truck factory in Russia, and Mercedes-Benz said it would drop its partnership with a Russian truck maker.

And in a sign of how the sanctions were hitting regular Russians in ways big and small, Apple Pay and Google Pay stopped working at many of Moscow's subway turnstiles - the ones operated by a bank on the United States' sanctions list.

For many Russians opposed to the war, those hardships paled in comparison to the moral cost of seeing their country launch an unprovoked invasion. Anti-war protests continued across Russia, with at least 411 people detained in 13 cities, according to OVD Info, a rights group that tallies arrests, for a total of at least 6,435 detentions since Thursday.

But the financial jolt offered tangible evidence of the West's outrage, one that is now washing over Russia's economy with unpredictable consequences.

Empty registration counters at the international area at Sheremetyevo International Airport in Moscow on Feb 28, 2022. PHOTO: NYTIMES

The sanctions announced by the European Union and the US over the weekend, JP Morgan analysts wrote to clients on Monday, "are more severe and wider than even the more extreme sanctions we had believed were in play just a month ago".

By Monday evening, the EU had added more Russian business tycoons to its sanctions list, including two owners of Alfa Bank, Mr Mikhail Fridman and Mr Petr Aven, who had cut a relatively Western-friendly image.

Some analysts worried that the wide-ranging sanctions, combined with Ukraine's ferocious resistance on the battlefield, could lead Mr Putin to escalate the crisis.

The Defence Ministry issued a statement saying that the bombers, submarines and land-based launchers that make up Russia's nuclear "triad" had been put on "enhanced combat duty", as Mr Putin had ordered on Sunday. Rumours circulated that men could be called up if the military got bogged down in Ukraine.

"I realised that this government has gone utterly mad," said Mr Ivan Petrov, 28, a Moscow machine learning engineer who flew to the Egyptian resort of Hurghada over the weekend, fearing the war in Ukraine could escalate to the point that he might get drafted. His next goal: Find a job in the West.

"Earning in roubles seems absolutely pointless," Mr Petrov said.

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On Monday, the sanctions' full force hit Russia's already stagnant economy.

Russia's central bank, its reserves largely frozen, more than doubled its key rate to 20 per cent to try to stabilise the rouble. A dollar cost more than 110 rubles at kiosks in Moscow on Monday compared with about 80 a week earlier, potentially devaluing people's savings given the likely increase in the price of imported goods.

In trading in London, shares of Sberbank, Russia's largest bank, lost three-quarters of their value. The vice president of the country's real estate agents' association declared that Russians could say "goodbye to the mortgage".

To stem the flight of capital, Mr Putin on Monday signed an order rolling back some of the free-market capitalism that had integrated post-Soviet Russia into the world economy. Russian exporters were required to convert 80 per cent of their foreign-currency revenues since Jan 1 into roubles; residents of Russia were banned from depositing money into accounts outside the country.

Russia's central bank more than doubled its key rate to 20 per cent to try to stabilise the rouble. PHOTO: NYTIMES

Mr Putin called an emergency meeting on the economy with senior officials, in which he repeated his reference last week to the West as an "empire of lies".

"Our financial system and our economy have collided with a totally nonstandard situation," Ms Elvira Nabiullina, the head of the central bank, said afterwards.

In a stark sign of the fury in the West over Russia's attack on Ukraine, even Switzerland - a favourite destination and banking hub of Russian oligarchs and senior Kremlin officials - ditched its traditional neutrality and joined in European sanctions, including personal ones against Mr Putin and Foreign Minister Sergey Lavrov.

There were signs of anger in the elite, though not among the security establishment closest to Mr Putin.

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Ms Nabiullina, who has said in the past that her outfit choices are meant to send messages, wore funereal black. Mr Oleg Deripaska, a sanctioned metals tycoon close to the Kremlin, wrote on social media that he wanted to know "who's really going to pay for this whole party".

Mr Vyacheslav Markhayev, a lawmaker from Siberia, declared that the Kremlin "hid plans to start a full-scale war against our closest neighbour."

"Countries should spend money on treating people, on research to defeat cancer, and not on war," Mr Oleg Tinkov, the billionaire founder of one of Russia's biggest consumer banks, wrote on Instagram.

Mr Stanislav Usaty, owner of a marketing agency in St Petersburg, said he expected to lose many of his clients because of the higher exchange rate, especially companies selling imports; he said he would probably need to lay off staff.

Ms Aleksandra Gridina, the owner of a travel agency in the city, said she would need to raise prices for international tours that her clients had already booked.

"It's a catastrophe for our business," she said.

People shopping at a supermarket in Moscow on Feb 28, 2022. PHOTO: NYTIMES

Still, while there was confusion at the subway turnstiles and lines formed at ATMs and banks, there was no full-fledged financial panic among the general public. And it was far from clear whether the sanctions would help turn more Russians against the war - or whether they would only increase their resentment of the West, confirming the Kremlin narrative that the US and Europe were determined to dismantle their country.

"Times change, much has happened, but one thing has not changed," a reporter on the state-run news channel Rossiya 24 said on Sunday.

"When a united Europe tried to destroy Russia, this always ended up bringing about the opposite result."

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The backbone of Mr Putin's power is made up of security officials who rarely leave Russia and stand to gain from greater state control over the economy. In the broader public, he draws his core support from pensioners and state employees, who are less sensitive to economic volatility than those in the private sector.

Shopping for groceries in Moscow on Monday, Ms Valentina Petrova, 85, who said she used to work on Russia's Proton space rockets, said the economic troubles did not faze her.

"I think the president did everything right," she said.

Mr Petrov said his parents also supported the war. And older Russians, he noted, had seen their share of ups and downs.

"They survived many other Russian crises," he said. "They're calm about this."

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