With the ruble in free fall yesterday, the Central Bank of Russia has stepped in, hiking its key interest from 10.5 to 17 percent. As at the time of writing, the Russian currency, driven down by a collapsing oil price, a deteriorating domestic economy, and capital outflows that have gathered pace since the Russian intervention (I’ll use too gentle a word) in Ukraine, has bounced back from a trough of roughly 67 rubles to the dollar yesterday afternoon to 61 or so now, but currency routs are rarely reversed by one display of central-bank shock and awe. There may well be further rate hikes to come, inflicting more pain on the country’s slowing domestic economy. And the possibility of capital controls must have increased (there was some talk of them back in October). That would be a step that would reinforce Russia’s increasing economic isolation, with consequences that would be unlikely to be pretty.

As a reminder, the ruble stood at around 32 to the dollar a year ago.

As a reminder, it’s when rats are cornered that they are at their most dangerous.

Over the weekend I caught up with this XX Committee post by John Schindler from the end of October:

Poland is the real issue when it comes to defending NATO’s exposed Eastern frontier from Russian aggression. Only Poland, which occupies the Alliance’s central front, has the military power to seriously blunt any Russian moves westward. As in 1920, when the Red Army failed to push past Warsaw, Poland is the wall that will defend Central Europe from any westward movement by Moscow’s military. To their credit, and thanks to a long history of understanding the Russian mentality better than most NATO and EU members, Warsaw last fall, when the violent theft of Crimea was still just a Kremlin dream, announced a revised national security strategy emphasizing territorial defense. Eschewing American-led overseas expeditions like those to Iraq and Afghanistan that occupied Poland’s Ministry of Defense (MoD) during the post-9/11 era, this new doctrine makes defending Poland from Eastern aggression the main job of its military. Presciently, then-Foreign Minister Radek Sikorski, contradicting optimistic European and NATO presumptions of our era that conventional war in Europe was unthinkable, stated in May 2013, “I’m afraid conflict in Europe is imaginable.”

Schindler goes on to examine how prepared the Polish armed forces really are. While he is impressed by the country’s ability to deal with Russia’s new type of war (what Schindler dubs “an amalgam of espionage, terrorism, and subversion”), Poland — despite recent efforts to boost its defenses — still lacks what it needs to head off a more traditional challenge. Neither time nor numbers are on its side.

But then, adds Schindler, “this begs that question why Poland, a leading member of the Atlantic Alliance, thinks it needs to worry about an actual Russian invasion”.

Indeed it does. An optimist, perhaps, I continue to think that such fears are more than a little overdone even as I fully understand the reasons — historical and contemporary — for them. Nevertheless that they exist is also a reflection of an alarming lack of trust in the ability of Poland’s NATO guarantee to deter aggression. Schindler argues that NATO has done too little to bolster allied forces in Eastern Europe (I’d agree). He also believes that recent symbolic gestures (“speeches, military visits, small exercises”) have impressed “the Western media but not the Russians.” That may be too harsh. In the game that’s now being played, symbolism counts (as an example of this, the Russian kidnapping of Eston Kohver, an Estonian intelligence officer now detained in a Russian prison, was probably a response — designed to show who really counted in the neighborhood — to Obama’s visit to Estonia just before).

But this, I suspect is spot on:

NATO assurances are met with a certain skepticism in Warsaw, including — perhaps especially — in defense circles. Then there is the touchy issue of President Obama. The Polish Right was never enamored of him, noting with disgust how Obama in 2009 cancelled a US/NATO missile defense system in the country, termed “betrayal” by Poland’s president, while making the announcement on September 17, the seventieth anniversary of Stalin’s invasion, added insult to injury. More than a few Polish right-wingers have doubted the staying power of Obama, particularly given his youthful dislike of President Reagan, a revered figure to many Poles for his major role in ending the Cold War and regaining Poland’s freedom.
Obama’s talky dithering on foreign and defense issues and his rough dealings with America’s friends have led to Polish worries spreading well beyond the country’s right wing. I deal regularly with Polish defense and intelligence officials, and over the last few years their doubts about Washington, DC’s courage and wisdom have mounted steadily. Poles understand that without American leadership there is no NATO in any military sense. Since the onset of Putin’s aggression against Ukraine, those fears have multiplied and there are now many in Warsaw who wonder if Obama would really honor Article 5 in a crisis.

That such doubt exists is very dangerous. To deter, deterrence has to be believable.

I’d be watching the ruble very carefully.