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Russia's then Prime Minister Vladimir Putin (C) visits a grocery store in Moscow REUTERS/Alexei Nikolsky/RIA Novosti/PoolRIA Novosti/Reuters

Russian President Vladimir Putin may be bluffing: Those thousands of troops on the Ukrainian border could be there to intimidate, to pressure and to provoke. He may have no intention of openly sending his army into Ukraine. Then again, he may not be bluffing at all. It is entirely possible that Mr. Putin will invade in the coming days. Why might he do this? Because there is a war being fought on the Ukrainian side of the border, which Mr. Putin fomented, armed and encouraged – and, to his surprise, he is losing.

A few months ago, Ukraine's armed forces appeared disorganized, discouraged and riven with dissent and bickering. But over the past few weeks, they have seized the upper hand in fighting with the rebels, pushing them back toward the Russian border. The Russian-inspired insurgency, equipped and partly composed of men sent from Moscow, has not been spreading. It has instead been isolated and rolled back.

Mr. Putin may be a strongman, but he is playing from a position of weakness. The Russian leader has discovered, to his great embarrassment, that he is far less powerful than the Soviet leaders he admires. He has been unable to push or pull the Kiev government back into Moscow's orbit. His proxies on the ground in eastern Ukraine, well armed but neither numerous nor popular, are facing military defeat. He gobbled up Crimea, but is losing the remainder of Ukraine to the West.

If Mr. Putin chooses to strike out, it will be because he is on the verge of a huge defeat, and a catastrophic loss of face. His only remaining weapons are, well, weapons.

In Ukraine, Mr. Putin is losing the propaganda battle, the diplomatic battle and the economic battle. And he can't do much on any of those counts. Russia is not the Soviet Union: It offers no alternative ideology, like Communism, that appeals to universal principles and people beyond its borders. His attempts to characterize the current Ukrainian government as the result of a fascist or even neo-Nazi coup, bent on persecuting the country's Russian minority, have persuaded almost no one, including Russian-speaking Ukrainians.

And Mr. Putin's plan to hit back against Western sanctions with sanctions of his own – this week, announcing a policy of refusing to buy most foodstuffs from the West – is likely to be self-defeating. Unlike the Soviet Union, today's Russia is not the head of a large economic bloc with a poor but at least largely self-sufficient system, designed to operate without the need for trade with the more developed West. The current Russian Federation is tied into the global, post-communist economy. It needs goods – from foodstuffs to electronics to banking services – that only the rest of the world, in particular Americans, Europeans and Canadians, can provide.

Russian citizens are better off than their Soviet predecessors, who suffered from shortages of the most basic consumer goods. But the new prosperity is built on economic interdependence. That trade connection to the rest of the world enriches post-Soviet consumers, but it comes at a price for any post-Soviet dictator. It diminishes his independence and room for manoeuvre. In any case, Russia is an economic pygmy: Its economic output, barely larger than Canada's, is dwarfed by that of the United States and the European Union.

The only place where Russia is more than a shadow of the Soviet Union is in terms of military power. Its diplomatic levers are enfeebled. Its ideological appeal is nil. Its attempts at putting financial pressure on Ukraine are outweighed by the economic opportunities offered to Ukrainians through greater integration with the West, and the hope that Ukraine could one day be free and prosperous like neighbouring Poland. (What can Moscow offer? That Ukraine will remain as unfree and unprosperous as Belarus?)

To influence events across his border, all Mr. Putin may have left is force. He may resort to the hammer because he has no other tools, and he's not willing – or able – to concede defeat.

He's tried using force through proxies, equipped by the Kremlin and with manpower in some cases sent directly from Moscow. With these proxy forces now losing, the question is whether Mr. Putin will double down on his bet, by sending in actual Russian soldiers. It would be daring for him to attempt this, as it would provoke a massive response of ostracism and boycott from Western countries. But it could even be more dangerous, from Mr. Putin's perspective, to not act. It would be a huge loss of face for Mr. Putin to see the Kiev government triumph, and to be forced to recognize Ukraine as a fully independent state.

By setting himself up as the protector of an allegedly persecuted Russian minority in Ukraine, willing to defend it against what he claimed was a kind of fascist Ukrainian regime, Mr. Putin painted himself into a corner. And in the course of stymieing his goals in Ukraine, the West must also figure out how to extricate Mr. Putin from that corner. Because the Russian dictator is a kind of wounded and cornered animal. That the wounds are self-inflicted and the corner was of his own design doesn't change the fact that, as dangerous as the Russian leader is, he is not playing from a position of strength.

The challenge for Western diplomats in the days and weeks to come is to discover a way to let Mr. Putin give us what we want – a democratic, independent Ukraine, sovereign over its territory and in control of its borders – without forcing him to lose too much face in the bargain. Mr. Putin has only one card left. The trick is finding a solution that allows him to back down, and avoid playing it.

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