Why Russia may be falling behind another Iron Curtain

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Dec. 2 2014, Updated 12:01 p.m. ET

The Iron Curtain

The Iron Curtain symbolized the ideological conflict and physical boundary dividing Europe into two separate areas from the end of World War II in 1945 until the end of the Cold War in 1991. It refers to the political, military, and ideological barrier erected by the Soviet Union after World War II to seal off itself and its dependent eastern and central European allies from open contact with the West and other non-communist areas. The Iron Curtain largely ceased to exist in 1989–1990 with the communists’ abandonment of one-party rule in Eastern Europe.

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Russia fears another Iron Curtain

With increasing sanctions from the West—namely, the US, Canada, and Europe—Russia seems to be getting internationally isolated. Russia’s ties with the West are at their worst since the Cold War because of Ukraine. Its land grab measures in the Ukrainian territory have dire consequences.

However, on November 23, Russian President Vladimir Putin said that Russia wouldn’t allow itself to become internationally isolated behind another “Iron Curtain.” On the other hand, Putin has accused the US and Europe of discounting Russia’s interests.

The performance of the iShares MSCI Russia Capped Index Fund (ERUS) and the VanEck Vectors Russia ETF (RSX) serves as a good gauge of the Russian economy, just as the SPDR S&P 500 ETF Trust (SPY), the iShares S&P 500 Index ETF (IVV), and the iShares S&P 100 Index ETF (OEF) do for the US economy.

Declining oil price and ruble to impact Russia

Putin also said that sanctions imposed by the West against Russia—along with the slide in the Russian currency, the ruble, and the drop in oil prices—would have no “catastrophic consequences” on Russia’s economy. The next part of this series explains Russia’s vulnerability to the recent oil price drop.

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