Russia's economy and financial markets may pay the price for Moscow's recognition of breakaway republics Abhazia and South Ossetia, which came over the protests of U.S. and European governments.
Amid the diplomatic standoff, the biggest concern in financial markets is that the West could respond with political and economic sanctions as tensions escalate, affecting capital flows and industrial ties.
"The conflict is to be the prime subject of discussion of most if not all international organizations and will likely lead to harsh statements against Russia, and might involve real economic sanctions," said Vladimir Osakovsky, an economist at UniCredit in Moscow.
Sanctions could include restrictions on mergers and acquisitions by Russian companies, travel or business restrictions on some officials or even the freezing of assets.
So far no such threats have come from the U.S. or Europe. But such measures - some of which are currently used by Washington against Belarus - would brake Russia's integration into the world economy.
Russia currently supplies nearly a quarter of Europe's energy needs, while the U.S. is keen to purchase liquefied natural gas.
Industry observers see little chance of Russia cutting deliveries, especially as it seeks to boost its own presence in the region's refining and retail sectors, where OAO Lukoil Holdings (LKOH.RS) in particular has been pursuing downstream assets.
Outside of oil and gas, cash-rich Russian firms have used the global economic slump as an opportunity to embark on a spending spree, with steel makers like OAO Severstal (CHMF.RS) buying up capacity in the U.S. and billionaire Viktor Vekselberg acquiring Swiss industrial group OC Oerlikon Corp. AG (OERL.VX).
Western consumer giants like PepsiCo (PEP) have made acquisitions in Russia in a bid to tap the ongoing consumer boom, something car makers like Ford Motor Co. (F) have also targeted in setting up plants.
"Immediate economic consequences are likely to be limited, but longer-term changes in Russia's stance on foreign direct investment and Europe's efforts to diversify energy supplies may have a more meaningful impact," said Dmitry Vinogradov, an analyst at UBS.
Last year, net capital inflows into Russia hit a record $82.3 billion. Official forecasts call for half of that in 2008. The total for the first seven months of this year and before the conflict stood at $30 billion. The conflict with Georgia over South Ossetia is now expected to cut these inflows back further.
Economists at HSBC Wednesday cut its forecast for growth in Russian gross domestic product to 7.2% from 8.0%.
"We see mainly downside risks to our new forecast, arising from the gloomier global economic outlook and the potential for the geopolitical tensions to remain high for months ahead," said HSBC's chief economist in Moscow, Alexander Morozov.
Russia is cushioned against economic crisis by the world's third-largest stash of gold and foreign-exchange reserves - $581.1 billion at mid-August.
But in the first week of the military conflict with Georgia, Russia spent $16.4 billion of its gold and forex reserves - or nearly all the gains from the previous month - as the central bank was forced to intervene on the foreign-exchange market to keep the currency stable.
With so much a stake, not least a spike in world oil prices if Russia's role as a major producer is jeopardized, most observers are betting against worst-case scenarios.
"I'm not sure there will be a big trade backlash," said Ian Mukherjee, who manages London-based Amiya Capital's $1.1 billion emerging markets fund.
The Kremlin also recognizes the need for foreign capital in order to maintain growth and diversify away from dependence on oil and gas revenues.
"We want foreign investment - there can be no doubt about this," Russian President Dmitry Medvedev said in an interview on Al-Jazeera Television Tuesday, according to a transcript provided by the Kremlin press office.
"We cannot build a developed country on energy prices alone, but I think all countries need to follow a responsible economic policy. I think this is a very important conclusion - we all depend on each other."