For as long as I can remember, policy nerds have been railing against the “new Cold War” paradigm. Take Obama, who told Mitt Romney that “the 1980s are now calling to ask for their foreign policy back because the Cold War has been over for 20 years.”

But no-one told Russia.

While the U.S claims to have moved on from zero-sum Cold War values, these values have been well on display in recent days. In late February, Russia’s federation Council voted to send Russian forces to Ukraine.

“We have heard how U.S President Obama declared that Russia would dearly pay for its policies,” said Yuri Vorobyov, the Federation Council’s public speaker. “I think these words of the U.S president are a direct threat, and he crossed a red line, he insulted the Russian people.”

The phrase ‘red line’ was nothing short of strategic. It was a direct jab at Obama’s embarrassing Syria Policy, something largely glossed over by the West but widely acknowledged abroad – from Russia and Israel.

But no one could have stopped Russian boots hitting Ukrainian soil – not Obama or any other U.S official. Putin sees the fall of the Soviet Union as a tragedy, and this goes right to the core of understanding the man. Ukraine is “the one that got away” in the hearts and minds of the Kremlin and many Russians themselves.

Putin is bolstered by the fact that he essentially is unchallenged from abroad. When the Obama administration got a Russian-backed deal to disarm Bashar al-Assad of his chemical weapons, the Americans saw it as a compromise in which everyone was a winner. But the word compromise isn’t in the Putin vocabulary. To him, there is winning and losing, and in that round, he won.

As with the departure of Michael Mcfaul, the outspoken U.S diplomat who left Moscow after serving two years as ambassador. For the Russians, McFaul was an ‘expert in revolution’ who was sent by Obama himself to see the overthrow of Putin. While he officially claimed to be leaving due to family reasons, the Russian Foreign Ministry saw his retreat as a victory, tweeting “good riddance!” after Mcfaul announced his decision.

Following these ‘wins’ and the muscle-flexing Sochi Olympics, Putin is on top of the world. The U.S can threaten economic sanctions and kick Russia out of fancy global clubs like the G8 – but in exchange Russia gets new territory.

Located on the northern coast of the Black Sea, Crimea has strong historical and cultural ties with Russia. It was Russian territory until a few decades ago, and one of the pretexts for Russia’s military invasion has been to defend its citizens and interests in Ukraine, especially in Crimea.

Yet Crimea’s strategic significance to Russia goes much further. The Crimean port of Sevastopol, home to the black sea fleet, is vital to Russia’s naval power in the region.

For years, Russia’s main international objective has been to be taken seriously. Until now, the United Nations Security Council has been the only stage for Russia to thump its chest – playing the role of spoiler, putting a spanner in U.S plans mostly because it could (hence the astute decision to not veto and actually support a humanitarian resolution in Syria).

But now the gloves are off. This is not the first time either – in August 2008 they intervened in Georgia during the South Ossetia skirmish. Even then there were fears that Russia would seize the capital, Tbillis, and overtake Georgia. But these fears never eventuated, with the ‘war’ lasting just five days, ending with South Ossetia and Abzhazia, another contested Georgian region, declaring independence. Russia was unchallenged then – and the conflict was quickly forgotten.

But five and a half years later, Russia is a vastly different place. Challenges to his authority began in 2012, and Putin has emerged more paranoid than ever. He blames the 2012 protests solely on the United States, and continues to believe that the removal of despots from Libya and Egypt was a product of U.S action. This view wasn’t helped by the violent protests in Ukraine, where U.S involvement was observed during the 2004-05 Orange Revolution. Sights of John McCain and Victoria Nuland strolling around the Maidan didn’t help either.

The U.S now has very limited options. For Secretary of State John Kerry, “unless immediate concrete steps are taken by Russia to de-escalate tensions, the effect on U.S-Russian relations will be profound.” The idea of further sanctions have been floating, and Obama pulled out of the upcoming G8 summit following an unproductive conversation with Putin.

I suppose the question is what will America do to handle Putin in the long run. Obama has tried playing nice, but this has been dismissed at every turn. The reality is that the U.S and Russia will never find common ground on Syria. The Kremlin will no doubt eventually disrupt any upcoming U.S attempts to influence Iran. Putin has successfully turned anti-LGBT into a tool for foreign policy. Now he has infiltrated Ukraine.

And this highlights a fundamental flaw in Obama’s dialogue and cooperation approach to international relations: what happens when the other side doesn’t care?

The answer is economics.

Russia has already sustained a hard blow for its aggression in terms of a fall in the stock market and declines in investments, both due to the increased cost of borrowing and the disillusionment of investors.

However this hasn’t been enough to shift the balance of costs and benefits in the eyes of Putin.

This became apparent last year when Russia was not repelled by the high cost of keeping Ukraine under its wing – with a willingness to pay almost $15 billion per year in discounted gas sales.

But there is still an opportunity to turn this around. If Europe was to impose harsher sanctions, such an an embargo on Russia’s gas supply, replacing it with Norwegian liquefied natural gas (as per expert advice), then Russia would potentially lose over $100 billion a year, enough to threaten serious economic collapse.

The famous Bill Clinton presidential campaign slogan, “It’s the economy, stupid”, comes to mind. The only thing that cause Russian retreat will be a severe blow to her bottom line.