Russia’s richest businessmen are increasingly frantic that President Vladimir Putin’s policies in Ukraine will lead to crippling sanctions and are too scared of reprisal to say so publicly, billionaires and analysts said.

If Putin doesn’t move to end the war in Ukraine in the wake of last week’s downing of a Malaysia Air jet in rebel-held territory, he risks becoming an international outcast like Belarus’s Aleksandr Lukashenko, whom the U.S. famously labeled Europe’s last dictator, one Russian billionaire said on condition of anonymity. What’s happening is bad for business and bad for Russia, he said.

“The economic and business elite is just in horror,” said Igor Bunin, who heads the Center for Political Technology in Moscow. Nobody will speak out because of the implicit threat of retribution, Bunin said by phone yesterday. “Any sign of rebellion and they’ll be brought to their knees.”

The downing of the Malaysian airliner, which killed 298 people, led to renewed threats of deeper penalties by the U.S. and the European Union, who’ve already sanctioned Russian individuals and companies deemed complicit in fueling the pro-Russian insurgency in Ukraine. U.S. Secretary of State John Kerry said yesterday the available evidence suggests Russia provided the missile used by the rebels to down the airliner. U.K. Defence Secretary Michael Fallon was cited by The Mail on Sunday as accusing Putin of “sponsored terrorism.”

Branding Russia, like Iran or Libya under Muammar Qaddafi, a “state-sponsor of terrorism,” as the British defense minister suggested, would be a major move that would have “a very significant impact on Russia and companies dealing with Russia,” Timothy Ash, an emerging-market economist at Standard Bank Plc in London, said by e-mail.

David Fuller's view

It is the same age old story.  Unopposed, the ruthless and destructive bully exploits those around him; only the stakes are much higher when the problem is cause by a dictator with a large military, who also supplies an essential commodity.  You can be sure that there is not an EU leader who does not regret the bad luck of being in office during Putin’s era. 

I am not suggesting a military response but much tougher sanctions are required.  Not all European leaders have the stomach for this, not least because their economies are currently weak and could easily deteriorate further with sanctions which hurt their trade with Russia.  However, there is also a real possibility that they would be better off if Putin was either removed from office by his countrymen or at least clearly weakened.   

The USA certainly has the economic influence to weaken Russia, but how far will it go?  President Obama may be reluctant to do Europe’s unappealing job for it.  However, clear evidence that Russian separatists within Ukraine shot down Malaysia Airlines flight MH17, which appears to be emerging, could tempt Obama to brand Putin’s Russia as a state-sponsor of terrorism.  This would be extremely difficult for Russia’s businesses and it would certainly weaken Putin.

The downing of MH17 has put the EU’s stock market recovery on hold for at least the near term.  You can see this from the DJ Euro STOXX 50 Index, although the damage to its big company constituents is not significant to date.  Nevertheless, this would change if it broke beneath the 200-day moving average for more than a week or two.  This has already occurred for the DJ Euro Banks Index.  Nevertheless, Europe’s very accommodative monetary policy should cushion downside risk and eventually support higher levels. 

Here is a related Bloomberg article of interest: Putin May Have Killed Russia’s Brand.