Related articles

In this article

WHEN the Soviet Union invaded Czechoslovakia in 1968, the Moscow stock market did not crash. That is because there was no Moscow stock market. By contrast, the news that Russian troops have taken effective control of Crimea was greeted on Monday by a 10% collapse in shares on the Russian market.

This contrast between 1968 and now underlines why talk of a new Cold War is misleading. The economic and political context of Crimea this year is entirely different from Czechoslovakia in 1968. Russia no longer has an empire extending all the way to Berlin. The pain of that territorial loss is part of the reason President Vladimir Putin is fighting so hard to keep Ukraine in Moscow’s much-diminished sphere of influence.

Just as important, the world is no longer divided into two mutually exclusive, and hostile, political and economic systems — a capitalist West and a communist East.

After the collapse of the Soviet system, Russia joined the global, capitalist order. A new East-West struggle is certainly under way today but it is being fought on entirely different terrain from the Cold War.

The Kremlin may assume that the West’s business dealings with Russia work in its favour. Putin, a former KGB officer, probably still believes the old Soviet maxim that western foreign policy is dictated by capitalists, who will not allow their financial interests in Russia to be endangered. The West’s supine reaction to the Russian military intervention in Georgia in 2008 may have strengthened this impression.

Ben Judah, author of a recent book on Russia, argues that the eagerness of western business people and former politicians to do business with Russia has made Putin "very confident that European elites are more concerned about making money than standing up to him".

Yet Putin, who is fond of judo, should know that a sudden shift of weight can turn a strength into a weakness. The interdependence of the Russian and western economies means that rogue actions by the Kremlin can inflict an immediate economic cost on Russia.

The first part of that price became apparent with the crash on the Moscow stock market after the move on Crimea. The imposition of economic sanctions or visa bans on members of the Russian elite would heighten the pain.

Visa bans on a widened circle of Russian leaders implicated in the military intervention in Ukraine are certainly feasible — which would stop them enjoying the properties and funds they have accumulated in Europe. The US’s "Magnitsky list" — imposing visa bans on Russian officials implicated in the killing of lawyer Sergei Magnitsky — has already established the precedent.

Of course, the economic damage inflicted would flow both ways. The most obvious western vulnerability is Europe’s reliance on Russian energy. The image of western householders shivering because the Russian gas tap has been turned off will worry European leaders. Yet even here, Europe’s vulnerability — and Russia’s willingness to use the energy weapon — can be overstated.

Russia needs to sell energy abroad. It gets 70% of its export revenues from oil and gas. The importance of such revenues to the Russian state ensured energy sales to Europe were continued even during the height of the Cold War.

Meanwhile, European demand for Russian gas has fallen during the past decade as renewable energy comes on to the market. US shale gas could also provide an alternative source.

With luck, the Russian government will, even now, think better of the course on which it has embarked. There is clearly scope for a diplomatic solution involving the pullback of Russian troops from Ukraine matched by guarantees for the cultural and political rights of Russian speakers.

For the moment, however, it seems more likely that Russia is determined to hang on to Crimea — and perhaps also to grab bits of eastern Ukraine.

US President Barack Obama and the leaders of the European Union have been swift to rule out a military response, and they are right to do so. But the West still has plenty of economic tools with which to make life difficult for the Russians.

For the past decade, Putin and his entourage have often used the rhetoric of the Cold War while enjoying the fruits of globalisation. Now they may need to be faced with a choice.

They can have a new Cold War. Or they can have access to the riches of the West. They cannot have both.

© 2014 The Financial Times Limited