By James Marson, Olga Razumovskaya and Alexander Kolyandr

MOSCOW--As Russian President Vladimir Putin has ratcheted up the conflict with the West for most of the year, the economic fallout on ordinary Russians has been limited.

Suddenly, though, the plunging ruble is reawakening fears of rising prices and the kind of financial crisis Mr. Putin has sought to put behind his country. As the ruble hit a record low, falling as much as 20% against the dollar Tuesday, Moscow residents rushed to buy electronics and other big-ticket items and drained rubles from ATMs to swap them for dollars and euros--signaling a new feeling of vulnerability among Russians and a fresh challenge to their leader.

From St. Petersburg to Siberia, money changers ran out of foreign currency and were raising exchange rates. Sberbank, Russia's state savings bank, and Alfa Bank, Russia's largest private lender, said they were experiencing a rush for dollars and euros.

"The demand is enormous. People are bringing piles, huge piles of cash. It is madness," said Kamila Asmalova, a manager at a Moscow branch of Sberbank. The branch ran out of foreign currency by 2 p.m., she said.

Lanta Bank, a midsize Moscow lender, said its foreign counterparts would be unable to send foreign currency Wednesday as aircraft that typically transport cash are full.

Apple Inc. said it halted online sales in the country because of the ruble's volatility, and IKEA announced it would raise prices there.

The ruble's continued fall despite the Russian central bank's move to raise interest rates to 17% rippled across global markets Tuesday, fueling a selloff in emerging market currencies and stocks. In the U.S., the turbulence was more muted, as the Dow Jones Industrial Average closed down 0.7%. The yield on the 10-year Treasury, a traditional haven, fell to 2.07%, its lowest closing level since May 2013.

Abroad, Russia's crumbling currency--driven by sanctions and eroding oil prices--raises the threat of a currency market contagion, particularly for emerging economies facing headwinds, such as Turkey and Indonesia.

At home, economists say the Russian central bank's rate gambit is certain to push the country's faltering economy into recession by raising borrowing costs. Even before the rate increase, the central bank estimated the economy could contract as much as 4.7% next year if oil remains around $60 a barrel. On Tuesday, Economy Minister Alexei Ulyukayev said that the government would introduce some "regulatory measures" on the foreign-exchange market, but that it wasn't discussing any capital-control measures.

The big question is whether Russia's economic troubles will turn into a real political challenge for Mr. Putin, whose approval ratings remain above 80% and who retains unparalleled control over politics and the economy.

The faltering economy could fortify the already strong backing for the Kremlin in its confrontation with the West, since Moscow blames the problems on enemies.

As the White House said Tuesday that President Barack Obama would sign a bill turning Russian sanctions into law, Russian Foreign Minister Sergei Lavrov told television station France 24 that "Russia will not only survive but come out much stronger."

Banks were already bracing for the impact of high interest rates. UBP fund manager Pavel Laberko said banks would be the first to be hit by the higher cost of borrowing, with weaker institutions having to halt operations.

"A lot of [market] participants are in serious condition because of these events," Bank of Russia Deputy Chairman Sergei Shvetsov told reporters Tuesday. "The choice the central bank made [to raise rates] was between very bad and very, very bad."

Global banks also have curtailed the flow of cash to Russian entities this week. Banks including Goldman Sachs Group have started rejecting requests from institutional clients to engage in certain ruble-denominated repurchase agreements and other transactions designed to raise cash, according to people familiar with the matter.

With credit more expensive after the rate increase, rising prices are set to hurt consumers. The Association of Retail Companies expects food and drink prices to rise by as much as 15% in the first quarter of next year, according to its spokesman.

Russians have in recent days rushed to spend their rapidly weakening rubles on electronics and cars before their prices are expected to rise. M.video, an electronics retailer, attributed around one-third of current sales to such purchases.

Shoppers reported long lines at IKEA stores in Moscow after the company announced price increases in the coming days. Last month, Apple raised the price of the iPhone 6 by 25% in its online store in Russia as the U.S. dollar continued to rise against the ruble.

Deputy Prime Minister Olga Golodets warned that rising prices would lead to an increased number of people living in poverty, a rare government acknowledgment of impending economic pain.

Maria Semyonova, a 30-year-old home maker from Nizhny Novgorod around 200 miles east of Moscow, said she was expecting tough times paying for her mortgage and baby on her husband's salary and her maternity pay. She said the family was cutting back on New Year's presents, buying theater tickets for her parents rather than spending thousands of rubles on gifts.

Still, Mrs. Semyonova said she and her husband agreed with Mr. Putin that the West was at fault for the crisis. "I think that Putin is acting appropriately given the situation," she said.

Mr. Putin's main supporters--poorer people and state workers--often don't have savings and their expenses are mostly in rubles. The ruble's slide is mostly hitting the middle classes who sometimes vacation abroad and have savings. Tatiana Boytsova, a 28-year-old finance professional from St. Petersburg, said her colleagues spent 40 minutes in line trying to exchange rubles. She said she and acquaintances were canceling trips abroad even if tickets couldn't be refunded, since costs there would simply be too high.

Ms. Boytsova said she wasn't expecting much of an end-of-year bonus, and was even thinking about trying to sell her ticket to an opera Friday. "At the moment, money feels better than the opera," she said.

Some retailers were putting up prices on Tuesday after holding them steady for several weeks, so as not to scare customers while they sold off stock.

A store in central Moscow selling Apple products temporarily removed old price tags for computers and gadgets on Tuesday, while printing out new ones with prices higher by as much as $50 in ruble terms.

Nonna Fomenko

, Chiara Albanese, Daisuke Wakabayashi and Philip Shishkin contributed to this article.

Write to James Marson at james.marson@wsj.com

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