It was a lunch break at an international summit, as Key related to me earlier this year: "So we're having this joke exchange and one point I said to him: 'How long would it take a missile to get out from Moscow to NZ?' "

The Russian Prime Minister, Dmitry Medvedev, briefly consulted an aide, apparently without success, before turning back to the NZ leader. Key relates: "He said, 'Don't worry, I'll let you know before it happens'."

Key laughs heartily at the retelling. But jokes about nuclear weapons are an uneasy genre of humour. Russia's nuclear arsenal is the ultimate reality of its power. It sits at the back of every conversation and calculation about Russia.

And since that exchange, the humour has drained away. Russia's President, Vladimir Putin, has put his country's 5000 nuclear warheads at the forefront. Three times in the past two months, he has raised the spectre of nuclear war as he confronts the West.

Most recently, he did it overnight Thursday Australian time while he was en route to a summit of 50 nations, the annual Asia-Europe Meeting, in Milan. "He's again threatened the West with nuclear weapons," says John Besemeres, a Russia expert at the ANU.

It's a dramatic way to make an entrance to a summit. "It trumps an AFL shirt-fronting any day," quipped Andrew O'Neil, a professor of international relations at Griffith University.

"It seems like a mastubatory fantasy he can't go without," says Besemeres. These are references that haven't been heard since the era of the Soviet Union, and even then it wasn't this overt."

Nobody jokes with Putin about Russia's atomic arsenal. Even a prime minister of far-away, pacifist NZ: "Putin is a lot more buttoned-down," Key agreed. And yes, Russian missiles do have the range to strike NZ. Or Australia.

"There is a low probability that Russian nuclear weapons are aimed at Australia, with one possible exception," says Peter Jennings, formerly head of strategy at the Australian Defence Department and now head of the Australian Strategic Policy Institute.

"That would be the joint facilities" – the US-Australian satellite tracking bases at Pine Gap and Nurrungar from which US spy satellites over eastern Russia are controlled. "The joint facilities are the only thing that may be relevant to the US ability to launch an attack on Russia."

Soviet officials bluntly told Australian defence officials during the Cold War that warheads were aimed at the joint facilities.

And today, "they are certainly on the Russian target list," says O'Neil, who is knowledgeable on Russian nuclear policy.

On August 14, Putin told members of Russia's Duma that he soon planned to "surprise the West with our new developments in offensive nuclear weapons about which we do not talk yet".

And six weeks ago: "I want to remind you that Russia is one of the leading nuclear powers … It's best not to mess with us."

Summarises Besemeres: "Putin's Russia is heading towards a police state internally and a rogue state externally. It's a very worrying combination."

Putin's aim is to restore Russian national pride after the humiliation of the Soviet Union's collapse, an event he has called "the greatest geopolitical tragedy of the 20^th century".

Through the force of his own will, Putin's project is hardening into the reality of Russia itself, at great cost to the Russian economy and to the stability of the world.

"Today, a single man personifies the entire Russian political system," says Moscow-based Fyodor Lukyanov, head of the Council on Foreign and Defence Policy, an adviser to the government. There is no way back for Putin, he says.

"For Putin, the question is not simply one of winning or losing a tactical position in a game. At stake is his own political survival and, by extension, Russia's future political landscape. With the stakes that high, why would anyone expect him to make serious concessions, especially knowing that he can never restore relations with the West?"

Australia's immediate concern with Russia's evolving bellicosity is narrower. It is Russian obstructionism over MH17 and the 298 civilians, including 38 Australian residents, who died when it was shot from the sky without warning as Russian-backed rebels fought to dominate the Ukrainian territory below.

It was the moment that brought Australia into the middle of the extraordinary reality that a land war is under way in Europe as Russia seeks to dominate its smaller neighbour.

The Labor leader, Bill Shorten, wanted to show Australian disgust by removing Putin from the guest list at the G-20 summit in Brisbane next month.

However, Foreign Affairs Minister Julie Bishop points out that "no one country has the authority to rescind an invitation to another member" of the G-20.

"What I said was that I would test the attitude of the other countries; I've done that. You certainly wouldn't get consensus for a withdrawal of the invitation to Russia. There are countries in the G-20 that are supportive of Russia."

These include China, Brazil and India, Russia's partners in the so-called BRICs grouping of large countries with emerging economies.

"Others, including the US and the UK, don't think he should attend," Bishop says, "and if he does, that we should take the opportunity to raise the issue of Ukraine and for him to face directly the concerns of the countries involved in MH17."

Germany, Britain and Indonesia are the other G-20 nations whose citizens died that day above Ukraine.

Prime Minister Tony Abbott made plain his frustration: "I'm going to shirt-front Mr Putin,"' he said this week. "I am going to be saying to Mr Putin 'Australians were murdered'. There'll be a lot of tough conversations with Russia and I suspect the conversation I have with Mr Putin will be the toughest conversation of all."

Yet, as Bishop points out, "we will need Russian co-operation" to finish searching the crash site and to establish responsibility.

"We still don't have free and unfettered access to the crash site," she says. There has been recent fighting in the area and "we're advised it's not safe".  The remains of 36 of the 38 Australian residents have been identified so far.

And, as Harvard's Joe Nye, a former top US official, points out: "It is natural to feel angry at Putin's deceptions, but anger is not a strategy."

He was not addressing Abbott's seething frustration specifically but the reaction of the West more broadly, but he might well have been.

Bishop met her Russian counterpart, Sergei Lavrov, overnight Thursday, Australian time, at the Milan summit to ask that "Russia use its influence with the rebels to allow safe access to the crash site", in accord with the United Nations Security Council resolution 2166.

Does Bishop think Abbott's public promise of a shirt-fronting will make Putin more likely to co-operate, or less?

Bishop neither endorses nor repudiates her leader's remark, but tells me: "My focus is on the repatriation of remains and the investigation" into responsibility for the destruction of the aircraft."

Analysts have remarked in recent weeks that Putin seems to be seeking to re-engage with the wider world. With Western sanctions biting Russia's economy and NATO indignation finally roused, Putin was thought to be looking to ease the pressure.

There are signs he is. By choosing to attend the Asia-Europe summit, he signalled diplomatic re-engagement. This leads to the expectation he will attend the G-20 summit in Brisbane.

And, by announcing the withdrawal of Russian forces from Ukraine, he seemed to be conceding to NATO pressure.

 

But is it so? Bishop is sceptical of the supposed Russian withdrawal: "The troops that weren't there were told to withdraw from where they weren't?" she poses archly, referring to Putin's many denials that the troops were there in the first place. "Jacqui Lambie will tell you that's a sign he's a man of peace.

"Putin has announced the withdrawal about three times; but we are told that troops remain."

Among the volumes of evidence that Russia has been waging a covert war in eastern Ukraine was a report in London's Financial Times in August of a secret memorial service in Moscow.

"In an anonymous military classroom," the newspaper reported, "12 portraits in identical tortoiseshell frames stand on a metal bench placed on a dais. In front of each picture is a bunch of six roses, red and pink.

"The dead, according to a source who showed the Financial Times photographs of last month's quiet memorial – an individual with intimate knowledge of the Kremlin's intelligence community – were operatives of Russian special forces. All 12 died in Ukraine in recent weeks. Officially, they were all on holiday."

Other evidence shows that the elite spetsnaz forces, in unmarked uniforms, have been directing the Russian rebels in Ukraine in their use of Russian-supplied armaments.

Yet are these signs that Putin might be seeking to take the hard edges off his confrontation with the West? Should Abbott expect a possible conciliatory gesture from Putin?

"He's a tough, hard bastard," says Paul Dibb, an intelligence chief during the Cold War and former head of strategy at the Defence Department.

"Putin is complicit. These were Russian-supplied SA11s that fly at Mach 3 speed with a 70-kilogram warhead and, more importantly, they are a relatively sophisticated bit of kit.

"They would have had to be trained in how to use it. It takes three people to operate the launcher. Putin will have ordered the assassination of the people who pressed the button. It's classic KGB. No fingerprints."

Dibb, an authority on Russian doctrine and a professor emeritus at ANU, says Abbott should not expect any concessions to the truth or to Australia's interests: "He's KGB trained. He's a former KGB colonel. He's not going to blink. He's a man trained in the perfect lie. In masking – maskirovka – in disinformation – dezinformatsiya. I know these bastards from Soviet times."

The economic sanctions are inflicting pain on Russia, but Russia experts say the world should not expect Putin to yield. He is forging economic deals with China. He has his people behind him, with approval ratings consistently at or above 80 per cent. A recent art exhibition devoted to Putin as a modern Hercules showed him fighting bravely the hyrda-headed beast of Western sanctions.

"Investors have learnt that, for Mr Putin, economic growth is not a priority," says a Russian economist at the Paris university Sciences Po, Sergei Guriev. "If he has to choose between growth and Crimea" the Ukrainian territory he seized, "he will choose Crimea."

So what is the best strategy for dealing with Putin's Russia? The man advising against anger, American Joe Nye, doesn't have any real suggestions. And there are clear limits to the pressures that can be applied to Russia.

As the head of the state-owned news network Russia Today, Dmitry Kiselev, considered to represent the Kremlin view, tells his audiences, Russia is "the only country in the world capable of turning the US into radioactive dust".

The Russians might be kidding about their nukes, but it might be a joke with an expensive punchline. Putin is counting on it.