For the last few months I've been spending at least a couple of hours a day following events in the Ukraine. I'll start this post with a summary of the players and their motivations.
Putin is very much not a Russian nationalist. He started his political life as a Soviet patriot. It's easy to see why such a person would have been attracted to the KGB. He now governs as a patriot of the multiethnic Russian state. In comparison Western presidents and prime ministers are neither ethnonationalists nor patriots of their multiethnic states. The ideology now reigning in the West condemns both of those things.
The February coup in Kiev threatened the interests of both the Russian ethnos and of the Russian state. Predictably, Putin only reacted to the latter set of threats. The Russian ethnos was threatened with further Ukrainiazation. It was clear that the new government would redouble its efforts to reeducate ethnic Russians living in the Ukraine into identifying as Ukrainians, speaking Ukrainian, accepting West Ukrainian cultural heroes and hating Russians. Not being an ethnonationalist, Putin was not particularly concerned by that.
The military and therefore political clout of the Russian state was threatened by the possibility of the eviction of the Russian Black Sea Fleet from the Crimea and by the possibility of the entry of all of the Ukraine into NATO. Putin quickly sprung into action on the first of those fronts. He annexed the Crimea, saving the fleet. And he will do his best to prevent the Ukraine's entry into NATO.
The neocons hate Russians and Ukrainians equally, but they are supporting Ukrainians, more specifically West Ukrainian nationalists, in this fight. This is because both the Ukrainian ethnos and the Ukrainian state are smaller and weaker than their Russian counterparts. If you're aligned against many opponents, you'd rather see them fight each other than unite with each other to fight you. And if you're playing divide and rule, you have to support the weaker enemy against the stronger one. If the stronger one wins, the internecine fighting will stop. The neocons don't want that.
West Ukrainian nationalists would like to continue their Ukrainization campaign. Hitler famously wanted to change the human hardware in the Ukraine, i.e. the people themselves. Ukrainian nationalists mostly just want to change the software. Unlike Hitler, they consider Russians to be suitable raw material for their nationalist project. They just want to brainwash them into identifying as Ukrainians. This item on the West Ukrainian nationalist wishlist is quite compatible with the neocon program of divide and rule. Ukrainization decreases the size of the larger of the two ethni whom the neocons want to fight each other. Ceteris paribus a less lopsided fight can be expected to produce more fighting than a more lopsided one.
Like all nationalists, the West Ukrainian kind would like to improve the standard of living of their people. And again, like all nationalists, they favor cultural conservatism for their own. This is sharply at variance with the neocon program for the Ukraine. The economy will not improve while oligarchs continue to loot the country. The neocons want the oligarchs to have even more power. And of course the neocons are extremely inimical to social conservatism for anyone but themselves. Since West Ukrainian nationalists are weaker than the neocons, the things which they want but which the neocons do not want are not being achieved. In summary, West Ukrainian nationalists are a junior partner in the alliance, little more than dumb tools.
Russian ethnonationalists (as opposed to the patriots of the Russian multiethnic state) see Ukrainization as a major threat. Millions of their people are being reeducated into becoming their bitter enemies. A major goal of Russian nationalism is the gathering of all the lands which are primarily populated by ethnic Russians (a category into which they include Russian-speaking Ukrainians and Belorussians) into the Russian state. I think that Strelkov, the commander of the most prominent group of armed insurgents in eastern Ukraine, is primarily motivated by that goal.
Putin doesn't share that goal. On top of that he is actively hostile to Russian nationalists. He has jailed large numbers of them over the years because he thinks that they threaten interethnic peace in Russia. Nationalists have hated him for a long time because he has not stopped the influx of Muslim migrants from Central Asia and the Caucasus into Russian cities, especially Moscow. They now also hate him for his relative lack of support for Russian Spring, the ongoing revolt in Eastern Ukraine.
His material support has so far been either non-existent or very tepid. I would not be surprised if it turned out that Strelkov's group came to Slavyansk on its own, without an authorization from anyone in the Russian government. It seems that their strategy was to start a fight and then wait for public opinion in Russia to force Putin to support them against Russophobe West Ukrainians and their oligarch and neocon sponsors.
How can this conflict develop and how would this affect the major players in it?
Scenario 1: A seemingly interminable, multi-year war in Eastern Ukraine. This will surely send a very large number of refugees into Russia. Perhaps millions. They will have to be housed and fed and they will be angry at Putin for not having defended their homes in Eastern Ukraine by intervening the way he did in the Crimea. So this is not a desirable direction for him. It is for the neocons though. Divide and rule, enemies fighting each other. West Ukrainian nationalists would lose some of the people whose children they were trying to convert into being enthusiastic Ukrainians, and the land itself would still be in dispute. So they wouldn't be happy with a prolonged war.
Scenario 2: A military defeat of the Novorossian insurgents. This will probably produce more corpses than the first scenario. There have been reports of organized massacres, mostly of adult men, in the couple of small towns that were taken by the Ukrainian side so far. It's scary to extrapolate that to the entire Donbass region. Plus there will be a very large number of refugees flowing into Russia.
A lot of people in Russia will blame Putin's lack of support for the massive death toll and for the indignity of defeat. The neocons have tried to organize a color revolution in Moscow before and they'll definitely try it again. If Novorossia is bloodily defeated, many Russians (a number exceeding that of conscious ethnonanationalists) will not see much difference between Putin and a neocon-sponsored alternative. I think Putin would still be better, but many, including people in uniform (I'm talking about the rank and file) would become indifferent to his fate. Without public support he could be overthrown like Yanukovich. So this is probably a very bad scenario for Putin.
Due to the violence perpetrated by the most hot-headed in their ranks and due to refugee flows West Urainian nationalists would lose some raw material for making new West Ukrainians. But they will have victory. That's always worth a lot. The neocons and the oligarchs will gloat from the owner's box.
Scenario 3: With a lot of help from Putin the insurgents throw the Ukrainian army out of the Donbass. The refugees would go back. Putin would escape the stench of defeat. Russian ethnonationalists would be emboldened by the victory to go further into southeastern Ukraine, to start a reunification-with-Russia movement in Belarus and to kick Central Asians and Caucasus natives out of Moscow and other historically-Russian cities. As I said before, in spite of being ethnically Russian Putin has always been hostile to Russian nationalists. So there are negatives for him in this scenario. Of course he could change. Stalin made a turn in the nationalist direction and he wasn't even Russian.
Obvioulsy, scenario 3 would be quite bad for the neocons and especially for Ukrainian nationalists.
Scenario 4: A full-scale Russian intervention. Maybe I'm biased, but I think that this choice would produce the fewest deaths of all. The Ukrainian army would offer only token resistance. Many units will surrender. If the Russian army does not go into Western or Central Ukraine (and it shouldn't), there will be no lengthy terrorist campaign afterwards. Those need support from the population. Who would want to hide Right Sector guys in Donetsk or Kharkov? NATO wouldn't fight Russian troops directly because it's afraid of MAD. The Russian economy will be hurt by new sanctions, but public mood will shoot up to the stratosphere anyway due to victory. Europe will simply be hurt by sanctions, and it's already in bad shape. Some Euro governments might even flip to the Russian side due to economic unrest.
Neocons and Ukrainian nationalists would be reduced to impotent rage. Georgians sided with the neocons in the 08/08/08 war and are widely seen to have lost. If West Ukrainians end up being seen by the international community in the same light, the supply of groups that are willing to side with the neocons against Russia, China, Iran or any of their other rivals will decrease.
So why hasn't Putin pursued scenario 4? I could be wrong about some of my assumptions here. Obviously, he has thousands of times more info than I do. He might be unwilling to embolden Russian nationalists. Or maybe he thinks that Scenario 4 is the only one in which any part of the Ukraine could be admitted to NATO. I'm not hearing any noises about NATO admission at the moment. Maybe that's because the neocons know that if they do it, Putin will definitely intervene, simply to take away from NATO as much of the Ukraine as he can, in other words as much of the Ukraine as Russia can take without creating a long-term terrorist problem for itself. But if he makes the first move (intervention), NATO will swallow up the west and center of the Ukraine in response. Which will weaken the position of the Russian state, the thing that Putin cares about most.
Of course there could be other reasons that I'm not seeing.