The shockwaves from the US credit crisis have started to crash into Russia’s economy.
The country’s recent war with Georgia triggered a flight by foreign speculators, who withdrew some £45 billion from Russia’s markets.
Now Russia’s stocks have dropped by 57 percent from their level in May. On Tuesday of this week the Russia’s main stock exchange suspended trading for two hours in a vain attempt to stop the collapse.
President Dmitry Medvedev tried to shore up the market by pledging $44 billion to secure banks and offering $20 billion to buy up shares. But this attempt to stabilise the system may also prove to be ineffective.
The transition from the state capitalism of the Soviet Union to free market capitalism devastated Russia in the 1990s.
The country’s economic revival over the last eight years has been based upon the global rise of oil and gas prices.
The value of its goods and services increased by 83 percent between 1999 and 2007.
During that time president Vladimir Putin – now Russia’s prime minister – brought the huge corporations that dominated the economy under government influence.
The recent 28 percent drop in the price of oil has led to fears among the ruling class that Russia could also be plunged into a deep recession.
With inflation rising and wages stagnating, Russia’s workers have not benefited from the boom and have had to increase their debts to make ends meet. They will be the main victims of any crash.
Russia’s newfound confidence to intervene against rivals in the region may also be affected by the economic crisis.
The rise of Russian firms and the wealth they provided to the state had allowed it to oppose US attempts to encroach into eastern Europe, a region Russia has historically viewed as its “backyard”.
It was worries over the US’s growing influence in the region that sparked the Georgia war.
Medvedev announced last week that Russia would build a space defence system and a fleet of nuclear submarines by 2020.
Russia’s defence spending is to rise by 27 percent next year to £95 billion – although this is only a sixth of the US’s defence spending. This will increase the tension between it and the US.