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Putin may have bitten off more than the Russian economy can chew

Putin - What have I done?
Putin - What have I done?
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Russia made a surprising concession over U.S. sanctions being levied for their invasion of the Crimea Peninsula. They may forgo plans to enter some international markets until they see the severity of all sanctions being discussed.

After the initial national euphoria over Putin’s claim to Crimea, Russia’s immediate economic future looks dicey at best. The initial sanctions have already made an impact as both Visa and MasterCard have ceased working with two Russian banks.

The U.S. also ordered sanctions against two dozen people from President Vladimir Putin's entourage days earlier.

Meanwhile, Russian shares on the MICEX index was down 2 percent on Friday. The Russian stock market has lost than more 10 percent this month as tensions grow between Russia and the West.

Russia's Finance Minister Anton Siluanov was the first high-placed official to sound the alarm to the Russian media. He noted be may drop plans to raise $7 billion worth of bonds this year if oil and gas revenues. The country "may decide to give up external borrowing," he said.

Bank Rossiya is one of two banks put on the Treasury’s sanction list while Visa and MasterCard have stopped providing services to them. The bank is considered a "personal bank for senior officials of the Russian Federation."

Another bank, SMP, discovered Friday that customer bank cards are useless. Visa and MasterCard will not provide services "without prior notification." The banks owners and personal friends of Putin are also on the sanctions list.

The bank, which is in Russia's top 40 with $5 billion in assets, said it had no assets in the United States and described Visa and MasterCard's actions as "illegitimate" because the bank, unlike its owners, was not covered by the sanctions.

Putin may have been smirking at the beginning of the Crimea crisis, but now he has ordered the country's central bank to help clients of Bank Rossiya. Russia's central bank said that the sanctions on "does not have a serious bearing on the lender's financial stability."

From frantic actions in Russia’s financial market, that appears to be a false statement. Russia may face a credit rating downgrading. The economy may slow further and the private sector may require official support.

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