INSTANT ANALYSIS-Russia on collision course with West

(Reuters) - Russian President Dmitry Medvedev signed a decree on Tuesday recognising two rebel regions of Georgia as independent states.

Following are some of the possible diplomatic and other consequences of the move.

FOREIGN POWERS

-- The West has strongly urged Moscow not to recognise the two regions and to back Georgia's territorial integrity, but the West's ability to punish Russia is limited.

-- United Nations sanctions against Russia are out of the question -- Russia has a veto in the Security Council.

-- Major powers are also wary of any action that might make Russia withdraw its help with U.N. sanctions against Iran over its nuclear programme and Moscow's transit support for NATO forces in Afghanistan.

-- Retaliation could involve Russian membership of the big international clubs: excluding Russia from the Group of Eight (G8) top industrial democracies or blocking its bid to join the World Trade Organisation (WTO). Moscow has already indicated that it is not interested in pursuing WTO membership at present.

-- Since the crisis began with Tbilisi's August 7-8 assault on the Moscow-backed breakaway province of South Ossetia, Western military intervention in support of Georgia, an aspirant for NATO membership but not a member, was never an option.

-- The NATO defence alliance has suspended activities with Russia, and the European Union will consider the future of a proposed partnership agreement with Moscow next month after brokering a ceasefire.

-- EU action could run from sending in peacekeepers to diplomatic moves such as breaking off talks with Russia over a wide-ranging strategic partnership, although it is the EU that has been pushing hard for a new partnership, or even economic sanctions such as curbing existing trade arrangements. But a reluctance among many nations to become embroiled in an obscure Caucasian trouble-spot and an awareness of Russia's clout as Europe's top energy supplier have prevented action.

RUSSIA

-- Whereas the old Soviet Union was an economic basket-case, today's resurgent Russian nationalism rides a tide of petrodollars from soaring oil prices and western Europe depends on Russian oil and gas.

-- Moscow feels absolutely confident of its position over Abkhazia and South Ossetia, saying Georgia's action in starting the conflict means it has forfeited its right to territorial integrity. The Kremlin feels it has much more public support at home for its actions in Georgia and in the stand-off with the West than over the conflict in its Chechnya province.

-- Russia also sees the conflict as an opportunity to teach a troublesome neighbour a clear lesson and to show the West that it was wrong to ignore Moscow's strong objections to the recognition of the Serb province of Kosovo earlier this year.

-- Medvedev has said Russia is not interested in confrontation with the West -- merely put it on what Moscow would see as a more equal footing.

-- But Russia has suspended activities with NATO, following NATO's own decision on a freeze, and Russia's envoy to NATO said on Tuesday Russia planned to halt visits by senior NATO officials and joint military exercises with the alliance.

-- The conflict with Georgia and its consequences have dramatically changed the Kremlin's agenda. Medvedev took office in May pledging to fight corruption, strengthen the rule of law and boost democracy, but his ideas for a new post-NATO security architecture for Europe are unlikely to receive much attention in the West now.

NEIGHBOURING STATES

-- Some of Russia's closest allies in the former Soviet bloc have distanced themselves from Moscow over its conflict with Georgia, heralding a possible rift with the Kremlin.

-- Georgia has already announced it is pulling out of the Commonwealth of Independent States and concern and mistrust over Moscow's intentions is likely to rise further in the Russian-led grouping of former Soviet republics.

-- Ukrainian President Viktor Yushchenko is sure to continue pressing for NATO and EU membership. The Georgia conflict has widened rifts among Ukraine's political leaders over whether to steer Kiev towards Moscow or the West, and political analysts say the Crimea in southern Ukraine could be used by Russia to destabilise Ukraine. It hosts Russia's Black Sea fleet in Sevastopol and most people living there are ethnic Russians.

-- Moldova also fears Russia's wrath after taking what it regards as the same path as Georgia in seeking NATO membership.

-- Concern about Russia's intentions is likely to grow in countries further afield that were once in the Soviet sphere influence. Countries such as Poland and the Baltic states have reacted more strongly to the Russian intervention in Georgia than most other EU member states.

ECONOMY

-- Ratings agency Fitch said on Tuesday rising tension with the West could damage foreign investor sentiment towards Russia. Edward Parker, head of emerging European sovereigns, said conditions for Russian corporate and quasi-sovereign borrowers could become more difficult, and sentiment towards other Central European and former Soviet republics could be affected.

-- Prime Minister Vladimir Putin said on Monday Russia saw no advantages to WTO membership and should freeze some commitments made during entry talks. He said Russia's economy would incur a heavy burden in meeting WTO membership requirements and that some of these demands were against the country's interests.

-- Although economic analysts do not widely expect Western business to break off relations with Russia it is considered possible that capital outflow will continue and could intensify. This could add to the weakening of the rouble, they say.