By Alexander Kolyandr And Alan Cullison 

MOSCOW--President Vladimir Putin accused the West of trying to subdue and disarm Russia at a defiant annual news conference Thursday, and blamed "external factors"--chiefly the drop in oil prices--for the collapse of Russia's currency and stock market.

He acknowledged that Western sanctions over the country's annexation of Crimea and role in Ukraine were biting, but said the economic troubles "are payment for our independence, our sovereignty." He reassured Russians that they would last no more than two years, as Russia retools its economy away from oil, upon which it had become overly dependent.

Mr. Putin's comments, the first since the ruble plunged earlier this week, signal he may hunker down for a long chill in relations with the West, although he appeared to be softening his stance in Ukraine.

He appeared to rebuff the pro-Russian separatists' calls to join Russia, saying, "we are assuming that the common political space in Ukraine should be restored, but what form it will take it's hard to say now." Previously, the Kremlin had dodged appeals of separatists to join Russia.

He admitted no role in causing Ukraine's crisis, and deflected questions about the presence of Russian troops there as well as allegations that Russia has stepped up aggressive moves such as military maneuvers. The U.S., Mr. Putin said, is the source of aggression.

"It's not a matter of Crimea. We are defending our independence, our sovereignty and our right to exist. We should all understand this," he said later in response to a question about whether the current economic turmoil is "payment for Crimea."

He blamed Russia's widening rift with Europe on the West, saying "they didn't stop building walls" after the end of the Cold War.

Russia's financial crisis could become the most serious political challenge for Mr. Putin in his 14 years in power, as officials expect a contraction of the economy of at least 4% next year. So far, polls show support for Mr. Putin remains above 70%, boosted by his tight control over the media and political system, as well as his confrontation with the West.

Mr. Putin's annual news conference, before hundreds of Russian and foreign journalists in a conference center in downtown Moscow, is a marathon affair carried live on state television and radio aimed mainly at his domestic audience. Mr. Putin said he's confident in public support, asserting that "people with their hearts and souls feel that we, and I, are acting in the best interests of Russia."

Mr. Putin began the news conference with his traditional recitation of economic results for this year. After months of playing down the impact of Western sanctions, Mr. Putin said that about 25-30% of the current economic problems "are the influence of sanctions."

The ruble has fallen almost 50% against the dollar this year, with the currency hitting record lows this week. Russia's central bank, in a bid to stem the ruble's sharp decline, raised its key interest rate Tuesday to 17%.

Mr. Putin said the central bank's actions "are on the whole appropriate, " although "some things could have been done more urgently," apparently referring to the emergency rate hike. He said he planned no reshuffle at the Central Bank or in his government.

He said the government wouldn't "thoughtlessly burn" its reserves supporting the ruble but would ensure social obligations are met. With revenues down, however, "we will have to cut some things," he said, without elaborating.

Mr. Putin signaled he will try to weather the economic storm with traditional market mechanisms. He again ruled out the imposition of capital controls to stabilize the ruble, but said the government would use its "influence" to encourage state companies to sell more of their export proceeds on the domestic market to ease pressure on the ruble.

In a sign of how nervous the business community has become, the share price of conglomerate AFK Sistema rose nearly 150 % after Mr. Putin, in an apparent effort to calm investors, said that money-laundering allegations against its owner, Vladimir Yevtushenkov, had not yet been proven. He added that he would invite the billionaire tycoon to a meeting with business leaders to be held Friday

Mr. Yevtushenkov, who has denied wrongdoing in the case, was released from house arrest late Wednesday but still faces charges.

Mr. Putin said the economic troubles also reflect what he called Russia's failure to diversify its economy. A further decline in oil prices is possible and that could lead to more drops in the ruble, he said. The current weakness could last up to two years, he said, during which "the economy will naturally adapt to the new conditions of low oil prices."

"It's inevitable that the situation will get back on a normal track" and that the economy will rebound as Russia shifts away from its dependence on the energy industry. "Life itself will force us," he said, because lower energy prices will stimulate investment in other sectors that had been neglected in the past.

The European Union and the U.S. have been in a standoff with Russia over the Kremlin's policy in Ukraine for most of the year, but ratcheted up sanctions sharply last summer, after the downing of the Malaysia Airlines passenger flight over Ukraine. Germany's Chancellor Angela Merkel on Thursday defended her tough stance against Russia, stressing sanctions remain "unavoidable" as long as the Kremlin disrespects countries' right for self-determination and European values.

President Barack Obama on Thursday signed a new package of Russia sanctions into law but won't put them in place, he said in a written statement.

The EU toughened its trade, investment and business sanctions on Crimea-based companies on Thursday, introducing a range of new measures from a ban on EU cruise ships visiting local ports to a ban on sales of energy and telecommunications technology.

Mr. Putin remained defiant on Ukraine, but avoided provocative language such as "junta," a term he once used for the current government in Kiev, and "Novorossiya," a putative geographic entity encompassing large parts of eastern and southern Ukraine that Russian nationalists have used to suggest Moscow should annex larger parts of Ukraine.

He credited Ukrainian President Petro Poroshenko with seeking a solution to the crisis but suggested other more hawkish politicians in Kiev could spoil matters. Asked about the pro-Russian separatist regions in eastern Ukraine that have been fighting against Kiev's forces for months, Mr. Putin accused Ukraine's government of imposing an economic blockade on the regions and called for a political dialogue.

In tough language, Mr. Putin returned to an analogy he'd used earlier this fall, comparing Russia to a bear in the Siberian Taiga wilderness, saying it was naive to hope that the West would leave Russia alone.

"They will always try to put it in chains and once they have it in chains, they will take out its teeth and claws, which in this case means our strategic nuclear deterrent," he said. "Once they've got the Taiga, they won't need the bear," he said, accusing Western leaders of saying publicly that Russia should be deprived of its vast natural resources.

Asked by a young female reporter from the provincial city of Voronezh about the personal life of "the country's most eligible bachelor"--clearly referring to Mr. Putin, who was divorced last year--Mr. Putin responded that "everything is in order, don't worry."

Write to Alexander Kolyandr at Alexander.Kolyandr@wsj.com and James Marson at james.marson@wsj.com