Why Russia - and Europe - businesses are running scared over Ukraine plane crash

How is the downing of the MH17 airliner a game-changer for Ukraine?

Professor Stefan Hedlund:

Well it’s a big game-changer in the sense that plausible deniability for the Kremlin has gone. Over the past two or three weeks there have been a number of reports of heavy equipment being filtered into Ukraine across the porous border with Russia, including tanks, armored personnel carriers and surface-to-air missile batteries. And the Kremlin has been able to simply deny that this is the case.

And the big business lobby in the Western countries that has been fighting tooth and nail against sanctions has been able to use those denials to block any political ambitions to strike back at Russia.

That has gone now. The outrage over the downed airliner is such that it is turning the other way round.

Now we are going to be prone to believe even outrageous things coming from the other side. We need to be wary of accusations of Russian wrongdoing. But the tide has really turned and those who have resisted putting sanctions on Russia, their case has collapsed like a house of cards.

We can see that the Russians are really running scared now. The oligarchs, the business tycoons in Moscow, are leaking that they are frightened that sanctions are going to ruin Russia, and the impact is going to be incredibly severe.

But they are so fearful of sanctions from the Kremlin that they do not dare speak up in public. But behind the scenes there is a lot of movement in Moscow.

If this crisis prompts international leaders to impose tougher sanctions, what impact will this have on Putin’s changing stance on Ukraine?

Professor Stefan Hedlund:

Well, this is the really tough question. The prudent thing that Putin really should do now is to – I mean, he has a window of opportunity in the sense that he can say that ‘what these separatists have done is so outrageous that it simply cannot be excused by anybody, and we will disavow them’. Then the Ukrainian army would be able to smoke out the rebellion.

But that would trigger a backlash at home. And Mr Putin is also not the man who gladly accepts humiliation. He would be forced to eat a lot of his former rhetoric. So I doubt very much that he will pull back.

The outrage in the West is so big now that ‘cosmetic pullback’ will not be sufficient. Western countries will demand that Putin really does pull back substantially and shuts down the border, and pulls the rug from beneath the feet of these thugs in eastern Ukraine. I really cannot see him doing that.

He will stonewall accusations of complicity, he may not step up support for the rebels but he will maintain it. And as we are speaking now [Monday, July 21, 2014] we get reports that fighting is intense in Donetsk city, meaning that no instructions have been given to the rebels to stand down and observe some sort of truce. So this is likely going to be pretty bad.

What difference will this tragedy make to the Ukraine-Russia crisis in the long-term?

Professor Stefan Hedlund:

What has been, until now, a sort of stand-off between Russia and the West over Ukraine, a zero-sum game where both sides have tried to pull Ukraine into their own orbit, and there have been vague threats of sanctions from the West, and there have been less vague threats from Russia that they would undertake a ground invasion, but this has been a lot of posturing. Now we’re moving into a hot conflict.

And if the Americans, followed by the Europeans, really do impose what is known as ‘sector-wide’ sanctions, ie. not targeting individuals but targeting whole sections of the Russian economy like the financial system, we can basically shut down the financial system of the Russian economy and cause total collapse.

If this happens then Russia is going to strike back massively. Germany has 6,200 businesses operating inside Russia that are presently hostages, so the fall-out of escalation here, if Russia strikes back big-time, then sanctions will have to be increased.

It’s going to be some time before we will see this leveling out into a coming together between Russia and the West. I mean, who is the honest broker here? We can’t rely on the Chinese. There really isn’t anyone to mediate in this crisis, so it really does look very, very worrisome.

(Photo credit: dpa)