That helps to explain why on Tuesday Russian President Vladimir Putin appeared interested in avoiding an escalation of tension, and why global financial markets are taking the simmering crisis in stride so far.
In coming days, economic sanctions by the United States and European nations are possible if Russia doesn’t signal readiness to step back from its military intervention in Crimea, an autonomous section of Ukraine.
If economic ties between Russia and the West are squeezed by sanctions on trade or banking, Russia stands to be the big economic loser, say experts in international finance. Its economy was none too strong before it sent troops into Crimea, they say, and economic penalties by the West could impose damage on several fronts.
Any curtailment of energy trade would hit Russia’s export revenues. Banking-related sanctions, meanwhile, could push up interest rates and deepen Russia’s problem with capital outflows at a time when Russia needs incoming investment dollars.
“I think that Ukraine's national integrity will be maintained” amid an agreement by Russian forces to move out of Crimea, says Anders Aslund, a senior fellow at the Peterson Institute for International Economics in Washington.
A sharp swoon in Russian stock prices on Monday signaled the high economic stakes, Mr. Aslund says, noting that the situation “turned” on Tuesday with Putin's comments suggesting that Russia won’t push its military intervention beyond Crimea.
Coming days will tell whether the West will impose sanctions to exert pressure on Putin to withdraw forces from Crimea, a Black Sea peninsula where the population is mostly Russian-speaking, and what form the sanctions would take. European Union leaders are set to meet Thursday on the issue.
Tit-for-tat sanctions could impose harm on all involved, of course. A cut-off of Russian natural-gas exports to the Ukraine and Europe would push up energy prices in those nations, even as they deprive Russia of needed revenue.
Ukraine has some gas reserves and “can manage for half year without buying from Russia,” Aslund estimates.
Another economist, Jay Bryson of Wells Fargo, says a shutoff of natural-gas pipelines could send both Europe and Russia back into recession.
“A back-of-the envelope calculation suggests that energy exports to the European Union may be equivalent to 10 percent or so of Russian GDP,” Mr. Bryson writes in an analysis this week. “Any decision by the Russian government to embargo energy exports would not be taken lightly.”
Russia, by contrast, is stuck in a period of weak growth, and with weak private-sector banks.
“Russia is in a different [and better] spot now” than in 1998, when the ruble collapsed, says Michael Marrese, who heads analysis of regions including Eastern Europe at the investment firm JPMorgan. But its economy remains troubled.
JPMorgan is scaling back its forecast for Russian economic growth this year from 1.8 percent to 0.8 percent, as a result of the Ukraine fallout. The lower forecast assumes that natural gas continues to flow (something in the interest of all parties) and that sanctions don’t put a total freeze on ties between Russian and Western banks.
Mr. Marrese spoke Wednesday alongside Aslund on a conference call about the Ukraine, organized by the Atlantic Council in Washington.
Russia’s incursion of troops into Crimea, which Putin predicated on the notion that Russian-speaking people there were at risk due to a turbulent ouster of Ukraine’s pro-Russian head of state, emerged in the news late last week. Russian stock shares took a beating on Monday, and global markets for energy and grain were rattled by the uncertainty.
But since Monday, investors have shown less panic about the likely outcome. The Dow Jones Industrial Average on Wednesday was essentially back to where it stood before the military intervention in Crimea.