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LIVE: Vladimir Putin state of the nation address
President Vladimir Putin has warned Russians of hard times ahead as he delivers his annual state of the nation address to parliament.
Speaking to both chambers in the Kremlin, Mr Putin condemned Western governments for seeking to raise a new iron curtain around Russia.
Western sanctions, in response to Russia's role in eastern Ukraine, and falling oil prices have hit hard.
The government has warned that Russia will fall into recession next year.
On Monday, the rouble suffered its biggest one-day fall since 1998.
The currency slid almost 9% against the dollar before rallying after suspected central bank intervention.
From the outset of his speech, in front of an audience of 1,100 people, Mr Putin defended Russia's annexation of Crimea in March, saying that the Ukrainian peninsula's residents were "our people".
He insisted that the "tragedy" in Ukraine's south-east had proved that Russian policy had been right, but said Russia would respect its neighbour as a brotherly country.
Condemning the "pure cynicism" of the West, he complained that even if Crimea had not been annexed, the West would have come up with a different pretext to impose sanctions to contain Russia's resurgence.
Then he began to accuse Western governments of trying to raise a new iron curtain around Russia. While he asserted that Russia would not enter an "expensive arms race", it would provide its own security so that nobody would gain military domination. Russia had enough "power, will and courage" to protect itself, he added.
Moving on to the economy, Mr Putin pledged that Russia would be open to the world - to foreign investment and joint projects. But he warned that it faced a "hard time ahead: much depends on each of us at our workplace". Western sanctions should be seen as a stimulus, he argued.
"We have a huge internal market and resources, capable intelligent people," he said. The key was to give people the chance to flourish.
Many Russians are hoping their president will offer ideas for a way out of the economic crisis, reports the BBC's Steve Rosenberg in Moscow.
Falling oil prices have affected Russia because of the country's reliance on energy exports, our correspondent says.
And Western sanctions over Russia's annexation of Crimea and its role in destabilising eastern Ukraine are contributing to the country's economic problems.
The estimated cost of sanctions and falling oil prices to Russia is $140bn a year, according to Russian Finance Minister Anton Siluanov.
Over the last year the rouble has lost around 40% of its value against the dollar and inflation is expected to reach 10% early next year.
However, President Putin remains popular, our correspondent adds. According to one opinion poll this week, 72% of Russians approve of the way he is running the country.
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