A steep fall in global oil prices has reinforced strong downward pressure on the ruble, which was triggered earlier in the year by massive outflows of foreign capital in response to sanctions imposed by the US, the EU, and other western countries to punish Russia for the annexation of Crimea and hostile actions in eastern Ukraine. The currency has lost about one-half of its value against the US dollar since the start of the year, and an unsuccessful effort to prop up the ruble through currency purchases has resulted in the erosion of foreign currency reserves by some 20%. Severe monetary tightening, highlighted by the central bank’s stunning decision to hike the main policy interest rate from 10.5% to 17% on December 15, has likewise failed to stem the slide, and will very likely deepen an expected economic contraction in 2015.

Thus far, the country’s lurch toward economic crisis has produced surprisingly little in the way of overt displays of popular discontent. There have been reports of grumbling on the part of some of the corporate power brokers who have long benefited from their close ties to President Vladimir Putin and form an important component of his political base. But more general protests over rising prices, the loss of wealth implied by the nosedive of the ruble, growing economic insecurity, and widespread official corruption have been notable by their absence.

Putin’s strategy of pursuing a nationalist foreign policy and his vigorous defense of the rights of ethnic Russians in Ukraine and elsewhere in east Europe have helped to sustain a high approval rating, which as recently as November was reported at 85%. Likewise, state control of the media has enabled the government to shape public understanding of what is happening to the economy.
That said, it is doubtful that even a population long accustomed to periodic crises will remain quiet if, as is likely, the economic problems continue to worsen, especially given the clear evidence that officials in the Kremlin do not have a concrete plan for containing the damage.

Under normal circumstances, the obvious course of action would be to seek a bailout loan from the IMF, but that path will be closed off to Moscow unless Putin is prepared to make a significant retreat on the foreign policy front, which would be politically disastrous for the president. He could turn to China for help, but officials in Beijing are will be wary of throwing Russia a lifeline without a clear sense of the level at which oil prices might stabilize.

Putin has painted himself into a corner. His options for extricating himself from his predicament are narrowing, and some of them have seriously worrisome implications for regional, and even global, stability.

The president might simply try to wait out his foreign adversaries. The sanctions on Russia are hurting European exporters, and a Russian default would contribute to instability throughout the European financial system. Consequently, signals from Moscow that it could no longer meet its debt obligations might convince the EU to throw Putin a lifeline. Likewise, falling oil prices have negative connotations for stability in an already deeply troubled Middle East, and with the containment of ISIL proving to be no easy task, the US and the EU might decide that they can ill-afford the added distraction of a crisis in Russia.

Indeed, the EU is already showing signs of wavering on the issue of sanctions. However, with the US having just recently imposed additional restrictions on commerce with Russia, it is debatable whether counting on the west to blink first is a viable strategy for Putin.

Of course, Putin could decide that his best course of action is to attempt to pre-empt a buildup of domestic discontent by fully embracing a policy of nationalistic expansion. Thus far, the president has displayed a reluctance to escalate international tensions, but neighboring countries, including Poland, Finland, and the Baltic states have voiced fears of Russian aggression. More immediately, with Crimea completely cut off during the winter months by frozen seas, the possibility that Russia might move to establish a permanent land corridor through Ukraine cannot be discounted, especially if Putin concludes that he has no other leverage with which to wrest concessions from the US and the EU.

The risks inherent in such brinkmanship are obvious, and the fact that top Russian officials, most recently Foreign Minister Sergei Lavrov, have periodically (and not always subtly) reminded the world that Russia possesses a large arsenal of nuclear weapons is hardly reassuring. Even if the Kremlin stops short of another overt land grab, the continued unauthorized encroachment of the airspace and territorial waters of neighboring European countries will carry a risk of an eventual miscalculation that triggers a military clash.