The US has the Russian bear by the ears as the Rouble plunges to depths it hasn’t seen since 1998. US and European sanctions, combined with record-low oil prices have pushed the Russian economy into recession. Russia’s GDP could decline as much as 4.5 percent in 2015 if oil prices don’t rebound. Meanwhile, the US is not letting the pressure go. A bill was passed on Saturday for additional sanctions on Russian energy and defense firms and Secretary of State John Kerry reiterated his calls for Russia to reverse course on its occupation of parts of Ukraine.

With bad management part of the problem, crony capitalism has further led the economy to its doom. The boss of the state-owned oil giant Rosneft, one of the largest oil companies in the world and also one of the most indebted, is at the heart of the current crisis and is a longtime Putin ally. He and the firm are sanctioned and Rosneft is locked out of international capital markets. Facing huge debts, Rosneft has been begging for a bailout and the central bank arranged a backdoor deal allowing the company to borrow money from local banks at a better rate than the government itself can borrow. The move has further spooked investors, who are now worried that Putin’s cronyism may extend to essentially printing money to back state-owned companies run by his wealthy friends. Everyone wants to get rid of their Roubles. Ratings firms are soon going to label Russian bonds as junk. They have lost the economic war. The question now is how Putin responds. His response to sanctions has usually been bizarre. He’d rather hurt his own people than cow down to western pressure. If he softens his line over Ukraine, the west’s gamble will have paid off. But if he doesn’t, and the response to the crisis is a siege economy and the ratcheting up of military pressure on Ukraine, it will prove a very hollow victory for the West.