Falling oil prices are an existential issue for Putin.

Russian President Vladimir Putin has a well-earned reputation as an astute tactician and a steely decision-maker. Yet over the past few weeks he has mismanaged Russia’s responses to two major crises: the collapse of the oil market and the coronavirus pandemic. Now he is facing one of the most acute challenges to his rule right at the moment when he had thought it safe to extend his term through a constitutional referendum.

The Kremlin’s first mistake came in early March, when it reacted to falling oil prices by rejecting Saudi entreaties to cut production. The Russian decision to push for an oil glut proved to be singularly mistimed.

Putin had likely hoped that a sudden drop in prices would bankrupt the many independent U.S. shale producers who operate on thin margins. And since the Russian budget balances at around $40 per barrel, while Saudi Arabia targets a price that is roughly twice that, the Kremlin no doubt figured it could stick it to the Saudis while absorbing a short-term fall in revenue.

What Putin planned as a knockout punch turned out to be more of an own goal. While the U.S. shale industry has indeed taken a hit, a recent round of consolidation has made it more adaptable than it might have been otherwise. By April, when the bottom had fallen out of the oil market and negative prices were being posted, it was President Trump who threw Putin a lifeline by brokering an agreement to cut production with the Saudis. Many in the Russian energy sector saw this as a humiliating climbdown.

Yet it’s not just Russia’s reputation as a market player that’s at stake. Oil prices are an existential issue for Putin’s petro-state, where budget and currency are closely tied to global hydrocarbon markets. Russia’s economic forecast appears correspondingly bleak. Though the Kremlin currently sits on a foreign currency reserve of about $430 billion, budgetary support for struggling businesses in the months ahead could blow through that cushion rather quickly. Worse still, the government could continue to mandate paid leave for workers in the midst of the coronavirus pandemic without providing the necessary financial support to struggling companies, forcing many to resort to dubious tactics to force workers off their payrolls or drastically reduce wages. This could easily result in a nationwide surge in unemployment and a wave of bankruptcies.