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The swagger of Russian soldiers in Crimea didn't impress investors in Moscow Monday morning. There has been a stampede out of Russian shares with the RTS index losing a tenth of its value; the rouble fell 2 per cent against the U.S. dollar, prompting the Russian central bank to raise its interest rate by 1.5 percentage points to 7 per cent.

Russia's annexation of a piece of Ukraine has spooked the markets worldwide: Tokyo tumbled and European shares have followed suit with the German index taking a large beating. Money is fleeing to the usual havens – the price of gold gained $24 (U.S.) this morning and oil gained ground, a knee-jerk reaction to the financial and trade sanctions threatened by the U.S. Secretary of State.

In the face of Russian boots on Ukrainian soil (welcomed by the mainly Russian-speaking population of East Ukraine), Washington urged retaliation with visa bans, asset freezes and sanctions on Russian banks. It's unclear what those sanctions would amount to, who would be targeted and how they would be implemented in Europe, where financial and trading links with Russia are extensive. American multinationals have large investments in Russian resources, but it is Europe that is on the front line in this dispute, and there was little enthusiasm in Brussels this morning for a trade war with Moscow.

Just to make the point, Gazprom on Saturday stuck its giant foot into the Ukrainian door, suggesting it might end the one-third discount it charges Ukraine for gas, unless Ukrainian utility Nafotgaz pays a debt of $1.5-billion owing from last year's deliveries. The Ukrainian utility has accumulated $3-billion in bad debts from its local customers. Ukraine cannot afford to pay its energy bills, and it wants a financial bailout from the EU, another issue to concentrate diplomatic minds in the West.

For markets, the question is who has the stronger hand and whether the hand will be played. Europe needs Russian energy. According to Eurostat figures, Russia supplies about a third of the EU's gas, a third of its oil and a quarter of its coal. The biggest issue is gas, due to transport logistics and the importance of transit pipelines through the Ukraine into Poland and Slovakia. Over the past decade, Western European countries have made concerted efforts to expand storage facilities and improve alternative supply routes with LNG terminals and new pipelines to North Africa.

However, the Balkans and Central European states, such as Slovakia and Hungary are hugely vulnerable. Oil imports from Russia are becoming more important. As output from the North Sea diminishes, Urals crude is filling the gap, to such an extent that there is even talk of Russian crude being included in the Brent benchmark.

If there is little appetite in Brussels for a tit-for-tat trade conflict with Moscow, the feeling is mutual. More than 80 per cent of Russia's oil and oil product exports went to European destinations in 2012 and most of its gas sales found its way into the European market and Turkey. After more than a decade of talks, Russia has still not been able to agree a gas export deal with China. Russia has $450-billion in gold and foreign currency reserves, enough to sustain a significant trade boycott but not forever. A besieged economy would also wreck the public relations success scored by President Vladimir Putin with the Sochi Olympics and the patriotic boost to popular Russian sentiment from the sight of Russian flags flying in Crimea.

No one has the appetite for a trade war, except perhaps the United States. After all, who would gain most from an EU energy standoff with Russia? The price of oil, diesel and jet fuel would soar in Rotterdam. American energy companies would lobby successfully for the speedy passing of a bill in the U.S. Congress authorizing the export of U.S. crude oil to Europe.

Meanwhile, cargoes of diesel would steam across the Atlantic to rescue beleaguered European motorists; the construction of LNG export terminals on the U.S. East coasts would accelerate and the immediate winner would, of course, be Peabody Coal, selling its dirty black lumps of energy to German power stations.

This is an extreme outcome. The more likely scenario is angry bluster in Washington and statements of grave concern in Brussels. The U.S. Congress will target the financial assets of Kremlin officials and a few high-profile commercial deals will unravel. Russian bank accounts in Cyprus will come under a great deal of scrutiny.

Nature abhors a vacuum and, seeing weakness in America and Europe, Mr. Putin has begun to fill the confusion of Ukraine with his foot-soldiers. He will want to avoid a civil war because he wants to integrate Ukraine into a wider Russian economy. The country has huge untapped potential in agriculture and there is talk of massive shale gas reserves.

In this new Crimean chess game, Russia has moved quickly and successfully on the ground, but the markets have warned of dramatic financial consequences if the conflict escalates. America has retaliated with a charge of its verbal brigade and Europe is troubled but largely silent. We might expect this state of affairs to continue for a little while.