An electronic board displays a stock index graph at the Russian Micex Stock Exchange the day after the Crimean referendum on independence from Ukraine in Moscow, Russia, on Monday, March 17, 2014. Russian stocks rallied for the first time in five days and bonds rose as investors bet any sanctions against the country after the Crimea referendum may be milder than expected. Photographer: Andrey Rudakov/Bloomberg

I CAN certainly understand Russian President Vladimir Putin’s frustration. I am sure he expected world financial markets to swoon in panic – and gold and other safe haven investments to sky-rocket – after he announced the annexation of Crimea in March.

But it didn’t work out that way. There were a couple of short-lived dips in the Dow Jones industrial average in March and April. But they were more closely correlated with US Federal Reserve policy moves than with anything Putin had done.

Since then, there has been a relentless ascent to fresh record highs. Even a more recent drop last month has not been frightening and represents a natural bout of profit-taking after a very robust rally.

How to explain that markets are unperturbed by the shenanigans conducted by a former superpower? Well, America is far away.

Maybe we should look at Europe then? Indeed, the Stoxx index of 600 European blue chips fell between early July and early August, losing 10 percent of its value. But that’s hardly indicative of a panic. European stocks are up almost 60 percent since the euro zone crisis moved out of its acute stage in late 2011.

The truth is that Russia, to Putin’s chagrin, is not a modern economic power. Its economy is worth around $2 trillion (R21 trillion), but the US and the EU together make up almost 40 percent of world gross domestic product (GDP), compared with Russia’s 2 percent. Without oil and gas, it would be far less than that.

Early this month, Putin banned imports of all agricultural and food products from countries that imposed sanctions on Russia, including the EU.

Surely that was a major blow. After all, half of all European agricultural exports went to the Russian market. Or was it? Last year, the EU exported less than $7 billion worth of agricultural products to Russia.

Even if no other markets for those products are found, the sum represents less than 0.05 percent of Europe’s GDP. Annual price fluctuations cost European farmers more than the total ban on exports to Russia.

Moreover, Putin chose the worst time to hit farmers – if that was his intention. Food prices have been elevated and farmers have had a number of fat years. Moreover, technology has allowed farmers to raise yields, while financial markets provide hedges against adverse weather conditions and price fluctuations.

True, Russia is a major oil exporter. It supplies world markets with around 7 million barrels a day, which is second only to Saudi Arabia. Russia’s exports represent around 10 percent of world supply.

Russia also supplies around 30 percent of Europe’s natural gas, and countries in eastern Europe and others like Greece and Germany have an even heavier dependence on its supplies. A disruption in energy supplies could lead to a sharp increase in oil prices and could keep the Europeans shivering this winter.

But, once again, the timing for Putin to start an energy war is not propitious. After 15 years of high energy prices, new sources of supply are popping up everywhere.

If worse came to worst, a spike in fossil fuel prices could accelerate the shift to renewable wind and solar power, which northern Europe is undertaking in any case.

On the other hand, an energy war is not something Russia can easily afford. Its energy exports – half of which go to Europe – represent 30 percent of its GDP and taxes on such exports account for 50 percent of federal budget revenues. Cutting oil and gas sales to Europe would push Russia into bankruptcy within three months.

Not surprisingly, oil prices have dropped some 10 percent in recent weeks and are now close to their six-month lows.

But what about the actual war? For the past six months, talk in Russia has been remarkably bellicose. Just the other day, Vladimir Zhirinovsky, the head of the – obviously mislabelled — Liberal Democratic Party, the third-largest in the State Duma, announced that the decision on whether there would be World War III had been made in the Kremlin and that, if the war came, the Baltic states and Poland would be annihilated.

Should this talk scare investors? During the Cold War, the Soviet Union and its allies had an overwhelming advantage in tanks and military personnel in Europe. Its forward armoured divisions, deployed to East Germany and other Warsaw Pact nations, threatened all of western Europe. It was a Nato assumption at the time that an invasion by conventional forces could not be stopped.

Things have changed dramatically. Now, Nato – including the US – has gained an overwhelming superiority over Russia in every aspect, ranging from a tenfold advantage in the air to a 2.5 times larger number of tanks. Nato soldiers are professional, well-trained, dedicated and battle-hardened in Iraq and Afghanistan.

In Russia, on the other hand, experts note a lack of motivation and discipline, poor training and hatred for superior officers. Despite the glitz and show put on at Ukraine’s border, in reality thievery, graft and corruption, which deeply permeate Russian society, are worse in its military.

And then there is the difference in the quality of armaments. The US has been spending heavily since the early years of Ronald Reagan’s presidency to upgrade and modernise its weaponry. Russian soldiers still use armaments developed by the Soviet Union. That puts Nato two generations ahead in most military hardware.

In short, international investors can be forgiven if they dismiss Putin’s threats of taking on Nato on the battlefield. If he actually follows through, let us not be duped by the voices of the military industrial complex in Washington that never wants to miss an opportunity to push defence sales even higher. Nato would make short work of the Russian army.

And yet, at least in one respect, Russia remains a superpower. The number of its nuclear warheads may be smaller than the combined arsenal of the US, Britain and France. And Russia’s means of delivery may be obsolete. But with 7 900 warheads Putin has enough firepower to destroy life on Earth many times over.

As long as we are talking economics and conventional warfare, there is no reason for world financial markets to panic. But the moment talk shifts to nuclear confrontation – and in recent weeks Russia has been talking of an all-out confrontation – we’ll see investors run for cover.

Alexei Bayer is the eastern Europe editor of The Globalist. Follow The Globalist on Twitter: @theGlobalist