Investors fearful of Russia's economic plight are probably overstating the risks of political upheaval, but unrest cannot be ruled out, according to Citi.

Investors fearful of Russia and whether the crashing rouble and fall in crude oil prices presage violent political instability are probably overstating the risks to the Putin regime, but unrest cannot be ruled out, according to Citi.

The US bank, in a regular geopolitical risk analysis note, says President Vladmir Putin continues to enjoy high domestic support, faces few political rivals, no elections until 2018 and benefits from the government narrative of self reliance and memories of the 1998 crash.

All these factors means that the Kremlin regime has more “breathing space” than many investors might believe and also suggests a big change to the political situation is unlikely, the bank said.

“Having said that, Russia’s history of protests, especially the most recent 2012 protests, underscores that there are limits to public tolerance for perceived regime excesses,” it said. “We think parallels to the 1998 [financial/political] crisis are overstated at this stage, and that it is too early to make comparisons to Brezhnev-era decline. But if low oil prices and sanctions are sustained for an extended period, or official actions inflame public sensitivities, political pressures could return to the fore in our view,” the bank said.

Russia, like another country treated by the West as a pariah nation – Iran – faces the double-whammy of falling oil prices (Russia earns a high proportion of export revenues from oil and gas) and economic sanctions that have been imposed for Russia’s annexation of Crimea and its alleged support for, and military assistance of, pro-Russia separatists in eastern Ukraine. (Iran has been at odds against Europe, Israel and the US for years over its nuclear energy programme, suspected of being part of attempts to create nuclear weapons.)

The rouble has lost about a third of its value since Putin moved in March to absorb the Crimea peninsular. In a speech yesterday, Putin attacked speculators hitting the currency and the central bank acted to prevent a shortage of cash. The sharp drop in the currency’s value has prompted fears that Russia could impose capital controls.

As reported by this publication in November, analysts are trying to work out what the impact of Russia’s woes, and the conflict with the Ukraine, will have on Western banks and the economy. While banks in the European Union and the US have yet to feel the full effects of the conflict between Russia and Ukraine, they are likely to be hit soon due to the nature of the interwoven financial relationships between them, global financial consultant PROFIT INSIGHT warned.

To read an article on how the wealth management industry should approach Russia at the present time, click on a guest article carried exclusively by this publication here.