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As ruble tumbles, what will Putin do next?

Against the backdrop of a falling currency, the threat of capital controls and a four-year low in the price of oil, analysts are wondering what Russia's "superhero" President Vladimir Putin will do next.

The Russian ruble suffered its worst one-day decline since 1998 on Monday, falling four percent to trade at over 53 rubles against the dollar as oil prices tumbled to multi-year lows.

On Tuesday, the ruble had weakened around 3 percent against the greenback to trade at 52.89 but year-to-date, the currency has fallen around 35 percent against the dollar on the back of a sharp decline in the price of oil – Russia's main export and revenue source.

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Adding insult to injury, the Russian economy ministry now believes that the country will enter recession next year, predicting that gross domestic product (GDP) will shrink 0.8 percent in 2015, revising an earlier forecast of 1.2 percent growth. The Central bank had previously forecast zero growth in 2014.

"The combination of lower oil price and weaker ruble obviously put pressure on the Russian leadership, but the consequences may be less dramatic and direct than expected," Marcus Svedberg, chief economist at East Capital, told CNBC Tuesday.

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"The economy, although close to a standstill and with poor prospects for growth next year, is not necessarily fragile. Reserves are ample, debt is relatively limited, and unemployment is historically low and there is no sense of panic or stress in Russia."

Economic Decline

With growth forecasts revised downwards by the Russian central bank, Putin – who revels in histough guy image -- is now presiding over a period of marked economic decline. But remarkably, his popularity remains high. According to November data from the independent polling agency the Levada Center, Putin has an 85 percent approval rating, although this had fallen three percentage points from October.

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Pressures on the Russian people remain high though. Inflation in Russia stands around 8 percent and looks set to increase with the economy ministry eyeing 9 percent before the year is out. The Russian central bank has hiked interest rates throughout the year and the key rate stands at 9.5 percent – a moot point for the president who wants to see economic growth in order to maintain credibility and the public's trust.

"We could see various warning headlines on Russian's economy that are most likely to occur if superhero Putin will not implement changes radically. The situation in Russia is serious," PetraKuraliova, trader at TradeNext said in a morning note.

Time is not on Russia's side. Investor confidence in Russia has been sorely tested by European sanctions imposed on the country for its alleged incursions into Ukraine, and the resultant capital outflows have also hit the country hard. On Tuesday, the Russian economy ministry forecast net capital outflows at $125 billion in 2014.

International tensions

Tensions between the European Union and Russia took another turn for the worse on Monday when Putin announced the termination of the South Stream gas pipeline plan designed to bring Russian gas into Europe via Bulgaria. Putin cited EU objections to the plan and named Turkey as Russia's preferred partner for an alternative pipeline, Reuters reported.

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"Russia is really, really struggling with the ruble, with where oil prices are (currently)," Amrita Sen, chief oil analyst at Energy Aspects, told CNBC Europe's "Squawk Box" on Monday. "(But) in terms of Russian leverage vis-à-vis Europe then gas is obviously the story. Ukraine remains extremely important as that's the only pipeline there is to get gas into Europe. If we get a cold winter, and the forecasts are looking pretty cold, the market is not going to like it if political disruptions start to take over again," she said.

With energy concerns at the fore, analysts believe there is no appetite for more political upheavals in Russia.

"I see no imminent threats to his total power in themedium term," Timothy Ash, head of emergingmarket research at Standard Bank, told CNBC. "I don't think the West either is in the game of regime change, because they fear that someone after Putin might be much worse. At least Putin is naturally cautious by instinct and very calculating, or that is the view in the West," he told CNBC in an email on Tuesday.

"But I do think Putin is at a cross roads between isolation and rediscovery of a new relationship with the West which could be better for both sides. Unfortunately at the moment isolation from the West looks more likely and that will be bad for Russia over the long term."

- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt.