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Can Putin Afford to Lose in Ukraine?

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If Russia's president moves to double down in Ukraine, it would have implications for the European economy, oil markets, and the general global optimism that has pushed US stock markets to record highs.

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Lately, the armed conflict in Eastern Ukraine has felt increasingly like last month's war.  Islamist depredations in Iraq and Central American teenagers swarming into Texas have become far more momentous stories for the US, while Europe's attention is glued to the World Cup with August vacations on the pleasant horizon. The Ukraine story lacked a dramatic development since Petro Poroshenko swept to victory as president in late May, an eternity in news-cycle time. 

The armies on the ground in the Russian-speaking Donbass rust belt seemed firmly stalemated. Russia looked to have achieved its objective of keeping enough insurgency going to preoccupy Poroshenko, while maintaining enough distance from it to head off serious economic sanctions from the US or, much more to the point for Russia, the European Union. Vladimir Putin's game, so far as it could be discerned, appeared to be keeping the Kiev government slowly bleeding, then freezing it into submission this winter by cutting off natural gas shipments. Putin's prime minister, Dmitry Medvedev, lately predicted a "full-scale gas crisis" for his southern neighbor starting in the autumn.

Then last week something weird and unexpected happened: Ukraine started to win the war. Kiev's much-maligned security forces routed the insurgents from the small city of Slavyansk, which had been their strategic bridgehead astride a railway line and HQ for their most competent commanders, and marched on toward the regional capitals of Donetsk and Lugansk, sweeping up half a dozen smaller towns without much resistance.

The conflict is far from over. The insurgents reportedly retain a few thousand men at arms plus some heavy weaponry and an unknown quotient of sympathy from the local populations.  That may be enough to raise the cost of urban warfare in Donetsk and Lugansk higher than Poroshenko can afford to pay. But the recapture of Slavyansk has to change the calculus of interested observers, starting with Putin himself.

Russia's leader will know very well from history that Russians will tolerate nearly anything from their leaders except military defeat. Tsar Nikolai II tottered after losing the Russo-Japanese War in 1905, then crashed amid the debacle of World War I. The Soviet Union disintegrated within a few years of admitting defeat in Afghanistan in 1988.  Many other factors were at work in all these cases, to be sure, and Putin's rule seems to be on much firmer ground. Still, three unthinkable political upheavals in one century is a sobering lesson for him to contemplate.

Russia, as Putin is at great pains to point out, is not exactly fighting in Eastern Ukraine. But state-controlled media, which is most of the media these days, has kept the population juiced with a ferocious propaganda campaign lionizing the heroic separatist "militias" and demonizing the demi-fascist "Kiev regime." Putin has periodically drawn what sound like red lines promising overt intervention. Days before the Slavyansk setback, he publicly told foreign ministry staff, "Our country will continue to vigorously defend the rights of Russians around the world, and will do so by any means necessary."

So just standing by while Kiev mops up the militias, if it can, would certainly look a lot like defeat for the Kremlin -- or worse, as a prominent nationalist ideologue in Moscow just told the Christian Science Monitor, like "betrayal."  

Openly invading Ukraine of course creates problems of its own for Putin, aside from turning what are now mere tensions with the West into an outright rupture. On the home front, his propaganda has worked both too well and not well enough. Despite widespread sympathy for the Donbass insurgent cause, two-thirds of all Russians remain wary of escalating the conflict into an outright war between the two states, according to a recent poll by the Levada Center in Moscow. Fully 54% worry that it could "grow into World War III" --  fruit of the official fairy tale that Ukraine is the latest domino in a neo-imperialist US plot for world domination.

Russians, in other words, do not seem to be itching to have their boys go kick ass in Donetsk and Lugansk. The contradictory PR monster that the Kremlin created seems to have left it momentarily paralyzed since the militias fled Slavyansk on July 5.  Official news broadcasts have adopted a plaintive tone, showing bombed-out buildings and enraged citizens in the recaptured town as if Kiev shelled its own citizens for no conceivable earthly reason, but the terrible visage of Mr. Putin is nowhere to be seen.

Putin is a big-league politician, if nothing else, and his indecision won't last long.  If he moves to double down by rolling the Russian army into Ukraine, that story will jump out of the back pages fast with big implications for the European economy, oil markets, and the general global optimism that has pushed US stock markets to record highs.

Probably Putin will first try to reinforce the insurgency by covert means. He did this once already just after Poroshenko's election, replacing hapless local commanders with experienced Russian veterans and pro-Russian loyalists from the warrior republic of Chechnya. If that doesn't work, Putin will agonize over what to do next. The rest of the world will agonize a bit with him.  
No positions in stocks mentioned.

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