That said, over the intervening period of the last year or so, more than 100 Ukrainian troops have still been killed in hostilities in the east, and at least this number of civilians and rebel combatants – close to 10,000 people have been killed in total since the conflict began in mid-2014.

The latest upsurge in violence has followed similar pattern of economic assets – railway/industrial infrastructure – being targeted in the east.

Second, there have been a number of high profile assassinations and attacks in recent weeks, including the respected investigative journalist, Pavel Sheremet (a Belarusian national) in Kyiv, and then a bomb attack on the leader of the Moscow-backed separatist enclave, Ihor Plotnytsky. It is unclear who was behind either of these attacks, but both sides have blamed each other, and an effort to undermine peace, security and stability.

Third, Moscow’s “unveiling” of an alleged plot by Ukrainian special forces (denied by Kyiv) to attack key strategic assets in Crimea. Moscow claims to have apprehended several members of Ukraine’s special forces armed with significant munitions, and also claimed a larger attack force were repulsed as they tried to cross into Crimea.

Worryingly, Putin has warned of special counter-measures are being planned now in response by Moscow. This comes as the past few days have brought reports of a large scale Russian military build-up around Crimea, with military trains bringing armour into the theatre.

This seems like significant new news for the market which I think had become “comfortable” with Russia/Ukraine risk on the assumption that after Putin took the foot off the gas in Ukraine in September 2015, and then pivoted towards Syria, he was content to put the Ukraine conflict on the back burner, and perhaps await the U.S. presidential elections, and perhaps a softer stance towards Russia by the next U.S. president, a softening in European Union policies towards Russia post Brexit and sanctions moderation at year end from the European Council meeting slated for December 2016.

How to read the latest events on the ground in/around Ukraine and from Moscow?

The first point is that it is always difficult to read Putin’s military game plan on the ground. This could be much of the same as we have seen over the past year, of small re-escalations just to impress on the West, and policymakers in Kyiv, that the issue over Crimea/Donbas and Russo-Ukraine relations is still unresolved, and Moscow remains a key player. Perhaps this is just keeping the conflict “warm” or rather “hot” and a call to more talks.

It is also important to note that in almost any scenario I doubt that we are likely to see a full-scale Russian military assault.

Moscow has had plenty of similar opportunities in the past but Putin is cautious by nature and failed to act then.

Meanwhile, the fact that Ukrainians fought hard in the past, imposing significant casualties on Russian proxy forces, suggests still that we are only likely to see localized escalation, if that, rather than some large-scale “invasion” across Ukraine’s borders.

Russia simply lacks the military capability to take and hold large swathes of Ukraine, against what is now clearly (proven) a determined opponent, resisting such invasion.

So if something is going to happen I think it is more likely to be an attempted repeat of the Illovaisk or Debeltseve playbooks, looking to expose Ukrainian (and Western) weakness across a very localized front, and to disrupt the Ukrainian economy, while destabilizing domestic politics in Ukraine.

But why now?

A number of reasons can perhaps explain this latest upsurge in tensions/rhetoric from Moscow:

First, State Duma elections are upcoming on Sept. 18, and Putin will be eager for the ruling United Russia party to do well, as a precursor then to his own re-election in the March 2018 presidential elections.

While polls show United Russia doing okay (60 percent support), Putin never likes to take chances with domestic politics, and will want to impress on the Russian electorate his own strength, and how lucky they are to be Russians citizens, as perhaps compared to their Ukrainian counterparts, as reflected on insecurity, weak leadership in Kyiv, and weak backing from its Western allies.

Putin wants United Russia to win the State Duma elections very, very well, as a reflection of popular support for himself. He also perhaps sees these State Duma elections as an opportunity for him to go into any future negotiations with the US president, with a refreshed strong popular mandate, and from a position of strength.

Second, Putin’s intervention in Syria has yielded significant political gains/leverage – as reflected in the PR coup this week with Turkish President Recep Erdogan’s visit – but no decisive victory for the Bashar Assad regime (or Russia), and with the bitter ongoing battle for Aleppo, the question is whether Assad’s forces have the ground forces sufficient to deliver a final military victory.

Russia’s own death toll in that conflict – exposed with the loss of a Russian helicopter crew over the past week – is rising and exposes the difficult choices Putin has to make therein, i.e., whether to double up to ensure victory, but which exposes key risks which could cause a backdraft to domestic politics. And note that opinion polls still show “soft” Russian popular backing for the intervention in Syria – there is some understanding over the logic for intervention in Ukraine.

Third, the 25th anniversary of Ukraine’s independence from the Soviet Union, and importantly from Moscow, is looming on Aug. 24.

This is likely to be celebrated in Ukraine with some fanfare, but will expose scars and vulnerabilities in Moscow and perhaps unhelpful therein in the context of the looming State Duma elections. How better to provide a distraction therein than through a re-escalation on the ground in Crimea/Donbas, allowing Russians and Ukrainians to question what has been gained from independence by Ukraine.

Fourth, Ukraine’s own anti-corruption agenda seems finally to be making progress under the new prosecutor general, Yuriy Lutsenko, and a number of high profile ex-President Vitor Yanukovych ministers (Oleksandr Yefremov, et al) are in the process of being indicted/arrested. Perhaps the concern now in Moscow is that the arrest and trial of some of this cadre could reveal some compromising material on Russian intervention in Ukraine, through the links to the Yanukovych regime, having the potential to embarrass the Putin administration this side of the State Duma elections and also the presidential elections. So perhaps this latest re-escalation is a warning to President Petro Poroshenko’s administration not to cross red lines. It is notable that the rhetoric used by the Putin administration against the Poroshenko administration has again turned much more hostile in recent weeks, speaking again of coup plotters.

And note that this new risk of re-escalation comes as the Ukrainian macro outlook has begun to brighten, with real evidence now of macro stabilisation.

Large fiscal, current account and energy deficits have been reduced. The currency has stabilized, with NBU reserves being rebuilt from $5 billion to over $14 billion now, and with little or no Western international financial institution support over the past year.

Inflation has dropped from near to 60 percent to around 6 percent and the economy is poised for real GDP growth this year of around 1 percent. That number could be particularly embarrassing (in an election year) given that the Russian economy is likely still to record a real GDP contraction this year of 0.5%.

And, in the past, military re-escalation in the east has worked to destabilise the macroeconomc economy in Ukraine, forcing locals to buy foreign currency, weakening the hryvnia, depleting reserves, boosting inflation and driving the economy into recession. There may thus be a desire to go back to past proven policies and to try and weaken the comparative Ukrainian economic performance.

Fifth, I think Putin had been looking at the US presidential election campaign, and the prospect of a Donald Trump victory, as an opportunity for a reset in relations with the West, and indeed for “deals” to be done with a prospective future President Trump.

The Putin administration likely has strong “lines” into the Trump camp, through the Paul Manafort campaign team, which formerly ran Ukrainian president Viktor Yanukovych’s PR operations.

They likely clearly understand the dynamics running in the campaign and the U.S. election, and have perhaps come to the conclusion that a Trump election victory is now unlikely – given the momentum lost in recent weeks as Trump has seemingly begun to self-destruct.

With this in mind, and with an eye on a hawkish Hillary Clinton presidency, perhaps there is a desire now to try and cut a deal with the dovish Obama administration, just before it exits.

This kind of also dovetails with the on-going Victoria Nuland-Vladislav Surkov peace talks between the US and Russia over Ukraine which are reported to have made some progress on security measures around potential elections in (Kremlin separatist enclaves).

On a similar note perhaps Putin’s read also is that Brexit will not bring much change in terms of the European Union political mix, with the Theresa May administration in the United Kingdom moving quickly to re-affirm the position of the David Cameron administration on Russia and sanctions policy – Russian hopes of Boris Johnson as prime minister were also dashed, and as foreign minister he has also been brought quickly into line with U.K. foreign policy.

Sixth, on the Crimea specific events it is interesting that the latest “upsurge” in tensions comes ahead of G20 talks in China, and I wonder if there will be an attempt herein by Russia to get some joint declaration against terrorist acts (Russia has framed alleged attempted attacks in Crimea as a terrorist attack against its assets) which would somehow then provide de facto acceptance of its control of the peninsula – albeit undoubtedly to be blocked by the Western G20 members.

Putting all the above together perhaps the on-going rise in tensions, and risks of re-escalation, is some kind of effort by Putin to secure a one-on-one with Obama at the G20, as one of his (Obama) last acts in power, and an effort to “deal” over Ukraine and Crimea.

Interestingly, Putin has also signaled that he now sees the Normandy format talks, driven by the Europeans (Germany and France) as essentially running into the ground – getting nowhere, so again this could be all an effort to re-engage the US, perhaps coming on the back of the Nuland-Surkov talks.

What is somewhat unusual this time around is that in prior periods of Russian re-escalation, Moscow has attempted to cloak its activities on the ground – while this time Putin is clearly providing clear warnings of what Russia might do, suggestive again that he wants to deal. Putin’s past security service background means that he is a much less conventional politician than his Western counterparts, and to read him you have to understand how a spy would think/play particular events – see as a great example herein Karen Hill and Clifford Gaddy’s great book, “Putin, The Operative,” which is a great read and calls Putin to a tee.

Just one final comment – on the question of Western sanctions on Russia.

I think the market has become complacent of no more Western sanctions.

I think this is mistaken in a scenario where we see further Russian escalation in eastern Ukraine.

Indeed, I think the West has now delineated a clear playbook on sanctions in different scenarios, and likely made this clear to Moscow.

Even a somewhat disengaged Obama administration would find it difficult to act against further Russian escalation/aggression in Ukraine, against the backdrop of a U.S. election campaign where Russia has become an issue.

In order to defend its own legacy, and support the Clinton position, I think the Obama administration would respond to further Russian escalation in Ukraine by pushing to enact yet more sanctions on Russia.

Even Trump, put on the back foot in recent weeks over his Russia policy, might have to appease his own Republican backers in Congress by supporting a hawkish line on Russia – simply saying he would sit down and talk with Putin, while the Russian tanks potentially roll through eastern Ukraine will not stand to muster.