Don't underestimate Vladimir Putin: he knows how to fight back.
And right now, that trait might be all that keeps Russia from a catastrophic collapse.
The facts on the ground in Russia are, at best, chaotic…
Oil prices are way down, and its currency, the ruble, has crashed.
But while the West may think it's got Russia under its thumb, Vladimir has plenty more tricks up his sleeve to stave off his country's mounting problems and see his people through the crisis.
Indeed, this one "nuclear" currency option in his pocket may just be his way out, and it has major implications for the global economy…
Russia's Problems Only Seem Insurmountable
Russia's ruble has lost 50% against the U.S. dollar so far this year, even trading intraday to an all-time low of 80 per dollar before recently recovering to about 65.
And that was despite the Russian Central Bank's fifth rate hike, and its most dramatic revision from 10.5% to 17%, in order to stem the ruble's free fall. Indeed, traders were beginning to price in a possible Russian default.
At the same time, a weak ruble is a headwind for Russian companies and banks that owe in stronger foreign currencies.
Central Bank chief Elvira Nabiullina has already spent $90 billion to support the ruble, and is willing to tap another $85 billion next year from its $430 billion hoard of international reserves.
It's all thanks to biting Western sanctions and the oil price crash.
You see, Russia gets roughly 50% of its government revenues from taxes on oil and gas. Keep in mind that government budget projections are based on $95 per barrel oil. Lower oil prices means less taxes, and that's a serious dilemma as the price of oil works its way down below $60 per barrel.
So on Putin's orders, most government departments will cut expenses by 5%.
Yet, the jury is still out on whether these steps are enough.
However, the coin has another side…
Europe Will Always Need Russian Energy
Besides hefty foreign reserves, Russia's foreign debt is a manageable $675 billion, down by nearly $55 billion in the past year.
What's more, despite sanctions, Europe – especially Germany – needs Russian energy so Chancellor Merkel (who, let's remember, was the deputy spokesperson for the first democratic government in East Germany) has no intentions of backing any tough sanctions.
Russia has also been signing numerous energy mega-deals with China, including a $400 billion 30-year agreement. Putin's recent 1-day visit to India produced no less than 20 high-profile deals worth some $100 billion in commercial contracts, half of which is in oil and gas and $40 billion of which is in nuclear energy.
Suffice it to say that, even at lower oil prices, Russia has plenty of willing buyers for its oil and gas, and increasingly they're paying for it outside the dollar.
But what if it's still not enough?
Putin's Secret Weapon
Sanctions have meant Western companies are avoiding doing business with Russia.
But the Eurasian nation has a golden option, should it be necessary…
Russia has been an aggressive buyer of gold.
The country's reserves have tripled to 1,150 tonnes since 2005, making Russia's central bank the world's sixth-largest holder of official national gold. It's likely that China's been buying even more, but they've shied from reporting their holdings since 2009.
In the first half of 2014 Russian gold production was up 27%, putting the country on pace to surpass Australia and move it into second spot, behind China.
It added around 150 tonnes to reserves this year, easily doubling last year's 77 tonnes,
Perhaps in response to slower sanction-induced foreign gold sales, Russia's been buying up a lot of its domestic production. Gold holdings currently make up 10.8% of total reserves.
That has many contemplating Russia selling off some of its gold to shore up the ruble.
About the Author
Peter Krauth is the Resource Specialist for Money Map Press and has contributed some of the most popular and highly regarded investing articles on Money Morning. Peter is headquartered in resource-rich Canada, but he travels around the world to dig up the very best profit opportunity, whether it's in gold, silver, oil, coal, or even potash.