The apparent downing of Malaysia Airlines (MAS:MK) flight MH17, possibly by pro-Russian rebels in eastern Ukraine, is a horrifying tragedy for the families of the 295 passengers and crew members on board. As a possible turning point in the confrontation between Russia and the West over Moscow’s ongoing campaign to destabilize Ukraine, it could also spell serious trouble for Vladimir Putin.
The crash came less than a day after the U.S. and Europe announced a new round of sanctions against Russia, targeting the country’s biggest banks and energy companies, all controlled by Putin’s cronies. Crucially, the sanctions would curtail the ability of Russian giants such as Rosneft (ROSN:LI), the state-owned oil company, to access U.S. equity and debt markets for financing. By raising the cost of borrowing, the sanctions have the potential to deal a punch in the gut to a Russian economy that’s already reeling, as my colleague Matt Philips noted on Wednesday.
Until now, the desire of some members of the Obama administration for more aggressive multilateral action against Putin has been stymied by the reluctance of European governments, particularly Germany, to antagonize Russia. Business interests in the U.S. have also claimed that American companies could be hurt if they lose access to the Russian market. In the aftermath of the Malaysia Airlines disaster, which almost certainly claimed dozens of American and European lives, such voices will be drowned out by demands from the public that Russia be punished for supplying the weapons that may have brought the airliner down.
To the vast majority of Americans, Russia’s meddling in Ukraine has largely seemed of peripheral importance to U.S. interests. That calculus has changed. As we have argued before, Putin has far more to lose from a prolonged confrontation than does the West. His finance ministry has already warned that additional sanctions would crush economic growth. And as more Russian businesses get squeezed and living standards deteriorate, Putin’s base of political support will crumble.
It may take months, even years, but Putin’s recklessness is bound to catch up to him. When it does, the downing of MH 17 may be seen as the beginning of his undoing.