Putin at Moscow's Vnukovo airport in December 6, 2014. REUTERS/Vasily Maximov/Pool Rapid changes in the financial markets and the Russian economy are forcing Vladimir Putin to change his calculus.



Now the Russian president has a choice between doubling down on his aggressive foreign policy or concentrate on putting Russia in order.

This week's plunge in the value of the ruble adds another layer of uncertainty to the ongoing faceoff between Russia and the West.

The currency crisis, precipitated by US and EU sanctions against Moscow and a global decline in oil prices, threatens to crater the country's lucrative state-owned enterprises and send the economy into a nosedive.

The question is how an ever-unpredictable Vladimir Putin will respond.

Putin's nationalistic and often-aggressive policies have appealed to Russians' post-Cold War sense of grievance and won him soaring approval ratings at a time when the Russian president is loathed in most western capitals.

But the ruble dive threatens to radically shift the conditions that have allowed Putin to maintain his internal popularity in spite of the western powers' opposition to him.

As New York University professor and Russia expert Mark Galeotti explained to Business Insider, Putin's rule is predicated on a "social contract" that most Russians have found acceptable: "You stay out of politics. You show enthusiasm but don't think you actually get a meaningful say in government. In return for that your life will improve and continue to improve."

Under Putin, Russia achieved perhaps the highest standard of living in the country's history while the government was able to replenish its coffers after periods of actual bankruptcy under Boris Yeltsin in the 1990s. Weaknesses remained: The new prosperity was largely distributed through Putin's hand-picked former KGB colleagues and much of the country's wealth depended upon robust oil prices and access to European markets. Record military spending also threatens to sap resources and hamstring any government response to a future economic crisis.

The recent decline in oil prices, along with the economic consequences of international sanctions, could bring Putin's arrangement crashing down around him. "This social contract is being torn up," says Galeotti. "But Putin could tear it up more quickly and more assiduously if he's still determined to maintain his aggressive geopolitical stance. It really is one of those guns or butter moments."

The ruble has declined in lockstep with global oil prices over the second half of 2014. Twitter/@Schuldensuehner

Galeotti believes that Moscow may send additional troops to eastern Ukraine in the hopes of pressuring Kiev into a settlement that would result in the lifting of international sanctions. But the chances of immediate escalation — beyond the Kremlin's current spate of military mobilizations and provocative military flights near and even in European airspace — remain low.

Putin has nothing to gain from fresh geopolitical turmoil, especially now. "If we assume that Putin and company want to maximize their chances of exiting this crisis with their fortunes and, ideally, their political power mostly intact, then they need to worry about how NATO and the markets will respond to fresh aggression," Jay Ulfedler, a political scientist and director of the Early Warning Project, told Business Insider. "At this point, I don't see many options for new aggression that carry serious domestic benefits for Russia and don't risk huge new costs, perhaps including a direct war with NATO."

But that's only in the short term. The Russian state has enough money to backstop the ruble for the time being and Moscow has the ability to bail out some of the state's vital assets. "The country’s strategic reserves may be (and I think will be) dispatched to help save some of the industries and businesses that are considered strategic (RosNeft and GazProm are first in that list), but others may be sacrificed," Hannah Thoburn, a Eurasia analyst at the Foreign Policy Initiative, told Business Insider.

The alternative is economic collapse and the severing of Putin's social contract — a scenario that could lead to internal disruptions serious enough to put Russia on an even more more aggressive footing.

In an economic worst-case scenario, Russia could see "an increasing tide of protest" and "an accretion of signs of concern" as popular discontent grows, Galeotti explains. In that situation, "the elite may also start to wonder if Putin is really the guy they want in charge."

In the face of public backlash and internal revolt, the long-serving Russian president may feel he has little choice but to rally nationalistic sentiment and push his advantage over his western rivals, which currently resides in the Kremlin's willingness to violently impose its will and violate the sovereignty of Russia's European neighbors.

Putin addresses the Federal Assembly, including State Duma deputies, members of the Federation Council, the heads of the Constitutional and Supreme courts, regional governors, heads of Russia's traditional religious faiths and public figures, at the Kremlin in Moscow, December 4, 2014. REUTERS/Sergei Karpukhin

Geopolitical expert Ian Bremmer told Business Insider that if he feels he's backed into a corner, Putin's options include more cyberattacks, "more aggression/incursion around NATO borders, excuses found for expansion of military engagement beyond present zone in Russia, [and] closer ties/integration with China."

And then there's the worst-case scenario, an economic meltdown bad enough to convince Putin that the continuity of his rule is under threat. Galeotti says that complete Russian economic collapse is "a possibility but not a probability." But as he notes, "imperial adventurism" in the face of political or social crisis is a Kremlin tactic dating back to the disastrous Russo-Japanese war in 1905.

It's one that Putin could resort to if things get worse. And between eastern Moldova, eastern Ukraine, and parts of Kazakhstan, former Soviet possessions that many Russians believe to be part of the national patrimony, Putin wouldn't have a shortage of obvious targets.