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Does Russia’s Putin need a miracle to help rescue the economy?

Threatened by U.S President Barack Obama, reprimanded by NATO and now downgraded by Standard & Poor's: Russian President Vladimir Putin needs a "miracle"to turn round the country's economy, a former ambassador to Moscow has told CNBC.

"He (Putin) fears to appear weak. He's actually presented himself with an insoluble problem," Andrew Wood, the former U.K. ambassador to Russia, told CNBC Tuesday.

NATO Secretary General Jens Stoltenberg knocked back an accusation on Monday in which Putin claimed that there was a NATO legion fighting alongside Ukrainian armed forces in Ukraine. He called it "nonsense" and said that the only foreign forces in Ukraine are Russian.

Moscow continues to deny the involvement of Russian troops in the conflict, which has once again flared in the eastern region of Ukraine. Over the weekend, 30 civilians were reported killed in Mariupol, in what Kiev says was a rebel rocket attack, according to Reuters. Meanwhile, President Barack Obama has raised the prospect of further sanctions and EU leaders have called for the same ahead of a meeting of European foreign ministers on Thursday.


Russian President Vladimir Putin
Reuters
Russian President Vladimir Putin

Wood believes that the Russian leader no longer has any credibility and believes that sanctions will be renewed this year.

"(Putin's) supposing that, particularly the EU, will be less than resolute and will lift sanctions eventually, that the price of oil will go up and that somehow a miracle will occur to save his economy. But he's actually in a terrific bind, I don't see how he can stabilize the situation in Ukraine and suddenly turn his economy round. He's in real trouble," he said.

Read MoreS&P downgrades Russia's sovereign credit rating to below investment grade

The country is due to fall into a recession in the coming year having been hit hard by the dramatic fall in oil prices and international economic sanctions following its role in Ukraine. The Russian ruble has experienced a major selloff due to the economic concerns. It was hit again Monday but managed to erase some losses on Tuesday despite news overnight that Standard & Poor's had downgraded Russia's sovereign credit rating to below investment grade.

Frank Gill, senior director of European sovereign ratings at S&P, told CNBC Tuesday the effect of the weak ruble on the banking sector was the reason behind the downgrade., He said that the lack of access to the international credit markets was a reason for caution and that the Russian central bank was only providing loans to the lenders in the weaker ruble.

"There may be some more pressure on the ruble," he predicted. Luis Costa, head of CEEMEA FX and rates strategy at Citi, told CNBC Tuesday that if oil continues to stay at low levels, it would be a "negative catalyst" for Russia's economy and estimated any "bounce back" could only be achieved in the second half of 2015.

With the EU meeting on Thursday now seen as key, Standard Bank's Tim Ash believes that any failure to respond to Russia could be seen as weakness and as evidence of a breakdown of EU unanimity.

"I guess if you were thinking of buying Russia risk, again, last week, you have now got your answer. Too early," he said, explaining that a "lasting" rise in oil prices, normalization in relations with the West and evidence of reform efforts at home would have to materialize before Russia became investable again.