The crisis in Ukraine continues to get worse against a backdrop of conflicting signals.
Pro-Russian separatists have called for a ceasefire but Ukrainian forces continue to pound them in Donetsk. At the same time, the Ukrainian government says it is willing to accept an international aid mission to prevent humanitarian catastrophe as long as Russia stays out, but NATO said today that there is a "high probability" of Russia invading Ukraine.
To understand what might happen here, we need to take a step back and analyze the complicated long game that Russian President Vladimir Putin is really playing.
Last week, in response to economic sanctions by the West, Russia hit back with trade sanctions of its own. The Russian government banned the import of many food and agricultural products from Europe and the U.S., a move that could cost Western food suppliers more than $17 billion in lost revenue annually.
But given that Russia imports 75 percent of its food from Europe and the U.S., this move could also hurt the Russians since the underdeveloped farming sector in the country will not be able to fill the shortfall, and food prices for Russian consumers will rise.
In Ukraine, Russia basically has three stark choices.
If there is a ceasefire, Russia can enter the territory under the Trojan Horse pretext of a peacekeeping mission, but the Ukrainian government is unlikely to ever allow that. If the fighting continues, Russia has to find a way to supply the rebels with enough arms and ammunition to battle the intensified efforts of Ukrainian forces, which will be extremely difficult. The third choice is to simply invade. But even if any of these actions actually worked, they would widen the rift between Russia and the West and at best prolong the painful economic sanctions, at worst bring Russia to a state of war with NATO.
So the big question is how far will Putin go?
Probably much further than we think. The overarching reason is that the Ukraine situation isn't really about conquest but about using the military as a political and economic tool. Hardline governments like Putin's derive their power from conflict, both internally and abroad. That doesn't mean that the Russian President wants outright war with NATO but the threat of one is enough to keep the West on edge, and Russia in a position of influence in world affairs. Brinksmanship is simply part of that game.
The other reason for Putin's intransigence on Ukraine is economic. While trade sanctions could be devastating for Russia in the long term, Putin is betting that Europe and the U.S. will be forced to negotiate with his country once the impact of those sanctions start being felt on both sides of the divide. As the food sanctions imposed by Russia clearly indicate, economic punishment can run both ways and Putin is playing that card expertly right now.
From a public relations standpoint, lingering sanctions which deprive ordinary Russian people of necessary resources will turn the Russian public even further against the West and enable Putin to pursue a new Cold War. The only difference is that this Cold War will be fought more on the economic battlefield than a military one, with occasional proxy wars (like the one in Ukraine) being used to provoke and escalate hostilities.
Contrary to what some analysts think, Putin is not in a corner but exactly where he wants to be, and as such will continue to push the envelope. It is likely that Russia will intervene directly in the region sooner rather than later in order to exercise more control - and to prod the West.
With the U.S. embroiled in a potentially long battle with ISIS militants in Iraq, and because of wider security concerns in the Middle East, Putin knows it would be strategically difficult for America to take on yet another major conflict. Moreover, with midterm elections coming up soon, President Obama may be reluctant to take military action in multiple theaters and risk angering voters already suffering from anti-war fatigue due to Iraq and Afghanistan. This creates a window of opportunity for Russia to flex some muscle with fewer consequences to worry about.
Putin also knows that once Russian forces go in, the U.S. will have no choice but to act militarily through NATO. However, given America's constraints mentioned above and given the astronomical risks of a direct conflict between Russia and the West, any escalation will inevitably force both sides to the negotiating table on Ukraine and the sanctions as well.
More importantly, and this is the real kicker, the price that Putin will charge for backing down in Ukraine will be higher than simply the lifting of sanctions. In order to avoid giving Putin a massive symbolic victory through the annexation of Ukraine, the West will have to offer economic concessions to Russia above and beyond the resumption of trade, which will make the Russian Premier a hero in his country and reestablish Russia as a formidable player in international politics.
What could such concessions be? One of the most strategic (from Russia's perspective) would be cutting edge military and commercial technology from the U.S. that Russia needs for its modernization and to boost its sluggish economy, which grew at an extremely anemic 1.3 percent in 2013. The Russians, like the Chinese, know that real national growth will not come from military power alone but from economic development and cooperation with the West - which, of course, is the great irony here.
The important thing to recognize is that on Russia's part, the conflict over Ukraine is clever theater designed to consolidate Putin's power within, to show off Russia's still-potent military prowess to the world, and to coerce the West into a more pliable stance on trade, especially new technology.
This is, quite simply, the modern Cold War - complex, paradoxical, but in some ways not that different from the previous one.
Sanjay Sanghoee is a political and business commentator. He is also the author of two thriller novels. Please visit his website at www.sanghoee.com and follow him on Twitter @sanghoee.