While Western sanctions in response to the war proved short-lived, Russia paid a heavy price for its victory in the flight of foreign capital – which both predated October’s financial crisis and exacerbated its effects in Russia. ~Cathy Young

This is a story that I heard bandied about in September, but which I didn’t think anyone would bother to repeat at this point. Capital had been “fleeing” Russia in the form of a decline in its stock market throughout 2008, long before the war in Georgia and the full outbreak of our financial crisis in September, in a more dramatic expression of the slow downward trend that our own market was showing through the first half of the year. At the time of the war in Georgia, the Russian index had already declined roughly 20% for the year, and Russia did not suffer its worst precipitous drops in its stock market until the full brunt of the financial crisis struck New York in mid-September. Most of the value lost in the Russian stock market and most of the economic woes now besetting Russia came about in the wake of the global crisis, which was compounded by the rapid decline in the price of oil, natural gas and metals. Capital flight from Russia has been extraordinary, as its market has lost 70% of its value on the year, but it has occurred during a period when all major indexes have declined by large margins. Any investors who pulled out because of the war in Georgia would represent a tiny fraction of that overall decline. It is telling that this RFE report on Russia in 2008 does not attempt to make the same claim and makes this observation instead:

But if the Georgia war passed largely without penalty, a far bigger blow was awaiting Moscow in the form of the gathering global economic storm.

Although its early ripples could already be felt in Russia months before the Georgia campaign, the massive scale of its impact is becoming clear only now.

Why were investors pulling out? RFE tells us:

Some estimates put capital flight since August at over $200 billion, as Russian and foreign investors flee a ruble that has sunk to a four-year low against the euro and which is being steadily devalued against the U.S. dollar [bold mine-DL].