However, the ease with which President Putin was able to annex Crimea has exposed the vulnerabilities of neighbouring countries and he is exploiting the situation to the full whilst humiliating NATO, whose members have no stomach for military action.
The fact that it would appear he has resumed his support of the pro-Russian rebels along with armaments so soon after the Malaysian Airlines disaster shows that he has a distinctive strategy in place which was briefly delayed but has now resumed and will not stop.
The extent of his ambitions to expand Russia’s borders are unclear but the calls of protest from neighbouring countries ahead of next weekend’s NATO Summit in Wales are becoming ever more hard-line. Statements from leaders that his actions are intolerable and unacceptable are only being backed up by sanctions which will do little to dissuade Mr Putin. Setting a deadline of a week to change tack will do little in the Kremlin.
However, the US will not stand idly by and allow President Obama to be humiliated – we are potentially witnessing the resumption of a new Cold War relationship with Russia which could last for years. This is not a short-term spat which will resolve itself over time but a situation that could have destroyed any trust for years to come.
The Western powers are in a very delicate position and Mr Putin is going to exploit this as much as he can regardless of the sanctions. The outcome from the forthcoming NATO Summit is important as it will reveal how far Mr Putin can go, and we suspect quite a long way, due to the hold he has over energy supplies to Europe. It is utterly bizarre that Ukraine has to negotiate its gas supplies with the Russian Energy Minister whilst at the same time asking their troops to stare down Russian gun barrels.
Stepping back from the political rhetoric and propaganda war we have to rationalise this for the markets. Whilst it has no immediate threat to the economic growth of the West, any interruption of gas supplies to Europe will have an economic impact. Over the next few weeks, where we have intensive energy supply negotiations, NATO discussions and Russian military incursions which appear to be costing Ukraine territory, it would be wise to be cautious in case the US suddenly raises the stakes above sanctions.
September/October is also often a tumultuous period and this issue could just be the catalyst for some weakness that current buyers stand back from in the short-term, thereby delivering a correction.
