Buckle up. We are now in the biggest crisis in a decade. Obviously everyone is freaking out and things are moving very fast, but it could get a lot worse.

And make no bones about it: the West is now at economic war with Russia. European Commission President Ursula von der Leyen has specifically said the goal of these sanctions is not to “punish” Russia or try to force the Kremlin to change its ways, but to “undermine its growth” and “degrade its economy”.

That is an act of economic war and the Kremlin has pointed this out before. The danger is that it will turn into the regular kind of war. That ball is in Russian President Vladimir Putin’s court but after the unprovoked attack on Ukraine, I don't think anyone is ruling that possibility out now.  

Russia has yet to comment on the sanctions, as it is still not clear how many of the new sanctions announced over the weekend will actually be implemented and in what form, but a Kremlin hardline response citing warlike acts is certainly on the cards. And of course Putin has already put his nuclear forces on high alert. However, the rhetoric is unlikely to escalate until the potential peace talks currently underway in Gomel on the Belarus-Ukraine border are done, as there is still a chance that this could all be over very quickly. Just don't count on it. The Ukrainians are ready to fight and won’t be willing to compromise now that there is blood on the ground.

Stepping back, it's clear that Putin is playing a brinkmanship game of historical proportions. I continue to believe this is all about getting his security deal and he is still turning the screws incrementally, but since the invasion the whole “game” (for want of a better term) has gone up a level.

All said and done, the war in Ukraine is still at a low level. There are lots of reports that the war is “not going well for Putin” but that is to miss the point: he is keeping it low key to force Kyiv to the negotiation table again before the damage and death becomes irreversible and unforgivable.  

The first rounds of diplomacy in January with the US and then with the French in February were normal and civilised diplomacy over dinners in Geneva or roundtables in Kremlin chambers, but both came to nothing. Then Putin went to the third stage of actually invading Ukraine and is now literally holding a gun to Kyiv’s head, but it is very significant that actually the fighting remains low key and that over the weekend the Russians, not the Ukrainians, offered peace talks. The Kremlin said this morning they want a peace deal “as fast as possible”.

If you look at what has actually happened so far, “only” 200 civilians have been killed during a full-scale invasion of Ukraine and there have “only” been targeted rocket strikes against military and infrastructure targets. Even the rockets targeting residential objects have either fallen in open ground or hit a limited number of largely empty apartment blocks.

This is scare tactics. When Russia does urban warfare – the most costly form of warfare that brings extremely high death tolls and massive destruction – it doesn't do house-to-house fighting. In the Chechen wars it simply flattened Grozny. I was in Grozny in the second war and driving through the suburbs it was simply gone: only a sea of rubble was left.

And that is what is on the cards for the fourth round in this “game of chicken”. That is what Putin will threaten the Ukrainian delegation with at the meeting in Gomel unless they agree to his demands to make Ukraine a neutral state and enshrine that in the constitution in the place where “we want to join Nato” now sits.

Given Ukraine can’t achieve a military victory (on paper at least) the rational thing to do would be to capitulate and agree to make Ukraine neutral. This is doubly sensible, as Nato clearly has no intention of offering Ukraine membership any time in the foreseeable future, so it's time to fess up to this reality and stop this war now.

But I have the very strong impression that is not going to happen. The thing with protests and war is that they are all about “radicalisation” – at some point the people and troops reach a point where they are more passionate about their ideals, beliefs and freedoms (or whatever the issue is) than they are about their personal safety. It seems to me that Ukrainians have passed that point. Ukrainian President Volodymyr Zelenskiy clearly has.

Adding to Ukraine’s determination to fight is that following this weekend's cascade of really tough sanctions that have gone well beyond anything anyone was expecting, Kyiv now has the entire world at its back (although not militarily) and Russia’s economy is under real pressure.

And there is the real possibility that the Russian people will revolt against this war, as despite Putin’s rhetoric about “denazification” and “demilitarisation” to “protect our citizens in Donbas”, no one in Russia is going to buy this. Regular Russians are in shock. Russians and Ukrainians are brothers in a way that it is hard for outsiders to appreciate.

Even more dangerous is that the troops are reportedly not buying it either and they are going through the motions but not really fighting.

The key here is that the Russian people and troops have not been radicalised and so despite Russia’s overwhelming military superiority it could actually lose this war by not defeating Ukraine. And even if it doesn't, it could do so badly, and lose so many men, that the Russian people would be radicalised – but against Putin.

This is really the only scenario where Ukraine comes out of this war with a victory: there is a colour revolution and the people either oust Putin, or there is a palace coup when the elite see Putin has lost the support of the people. His sky-high popularity has always made him untouchable, but he has taken a real risk here, as he will expend a lot of his personal popularity capital on this war and he could run out of reserves. The panic on the markets this week means the CBR could run out of cash too, despite still having three times more money than it needs to support the ruble even after EU sanctions are estimated to have frozen half its gross international reserves (GIR) of $643bn.

Bottom line: Putin needs a peace deal very fast. But if Kyiv refuses (highly likely) and if he then launches an assault on Kyiv using the loyal Chechen battalions sent to him by Ramzan Kadyrov (highly likely) then we go into a historically bloody and destructive phase – a crime that the Kremlin will never live down and could destroy Putin’s popularity overnight.  

There is still time to stop this. The rational step for Putin now to get his guarantee would be to seize the Donbas and use that to achieve a permanent no-Nato guarantee with relatively little fighting or destruction. But it seems we are moving beyond that and Putin is prepared to go the Full Monty and attack Kyiv. That would be, in my opinion, a colossal blunder.  

As for the sanctions: I wrote up a deep dive into the sanctions on the Central Bank of Russia’s gross international reserves (GIR). The key here is that while the Kremlin has long anticipated the US would grab Russian US assets if the harshest regime came into force, it is not clear at all if the Kremlin had assumed that the EU would do the same. It seems at this point that it did not. The EU sanctions on the CBR came as a complete shock and if there is an uncontrolled panic it could tip the economy into crisis. At the least it is going to condemn Russia’s economy to negative or very low growth for years to come, as it will take the CBR ages to unwind the rate hike to 20% that was put in place on Monday morning.  

Will that collapse the economy? Probably not, as it still has a lot of money, but suddenly it is looking a lot less sanction-proof than it was.

And that is what is so frustrating: Russia’s economy was really starting to recover last year. Banks and companies were making record profits. There was an IPO boom. Real incomes have grown for the first time in years. And life in Moscow and in an increasing numbers of regions is actually pretty good. Moscow was recently voted one of the top three most liveable places in the world. Now all that has been thrown in Trotsky’s rubbish bin of history.  

The fact that Putin has gone ahead says that he is more interested in security than the wellbeing of the people. This is pure Soviet mentality. The USSR was run on the same lines: develop the most powerful army in the world but at the cost of giving the population substandard exploding TVs and shoddy consumer goods. The people were expected to sacrifice their quality of life for the sake of the motherland. But that is another place where Putin has probably massively miscalculated: the people have had their taste of capitalism and they are no longer prepared to make this sacrifice any more.

This article first appeared as the blurb in bne IntelliNews’ EDITOR’S PICKS, a daily email digest of the best articles from the last 24 hours delivered free to your inbox. Click here to see the back issues and to sign up.  

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