WASHINGTON (MarketWatch) — Vladimir Putin has little choice but to withdraw from eastern Ukraine in order to stem the financial crisis that is spinning out of control in his country.

Western sanctions, the drop in oil prices, and crony capitalism in Russia have combined to create a “perfect storm” in Russian financial markets.

Dramatic efforts by the Russian central bank to stop the falling ruble have so far failed. It has revived memories of the 1998 financial crisis.

“What can Putin do? He can’t reform [the economy.] He’s stuck. The only think he can do is to stop the financial sanctions by withdrawing from eastern Ukraine,” said Anders Aslund, a senior fellow at the Peterson Institute.

Andy Kuchins, a senior fellow at the Center for Strategic and International Studies, agreed that Putin’s “only rational response” would be to find some face-saving way to withdraw from eastern Ukraine.

It was certainly a possibility that Putin would respond aggressively by increasing his activities in Ukraine “or even elsewhere.”

Analysts said that capital controls seemed to be the next logical step for Russia.

But Aslund said capital controls will not work. “Russians are far too smart to be influenced by capital controls,” he said.

In a meeting with reporters in London early Tuesday, Secretary of State John Kerry suggested that Western sanctions could be removed quickly if Russia stepped back in Ukraine.

He said Russia had made some “constructive moves’ in the last days in war-torn country.

“Our hope is that in the days ahead we can get a clear, defined path by all parties, where everybody understands what each is doing and living up to agreements and in moving to de-escalate this situation,” Kerry said.

“And I am confident that as rapidly as that can happen, you will see Europe and the United States respond with respect to the sanctions that are in place today,” the Secretary of State added.

The White House announced Tuesday President Barack Obama will sign a bill that would allow him to slap tough new sanctions on Russia.

The bill gives Obama the “flexibility” he needs to deal with Russia, White House spokesman Josh Earnest said.

But Kuchins said that the legislation does not compel Obama to put new sanctions in place.