Russia Facing Escalating Sanctions as EU Foreign Ministers Meet

March 16, 2014

Frankfurt (Mar 17)   European and U.S. officials will probably hold their most punitive sanctions on Russia in reserve as they wait for President Vladimir Putin to show his hand on whether he plans to push his forces deeper into Ukraine.

EU foreign ministers due to meet in Brussels today are set to impose travel bans and asset freezes on some Russian officials as Putin’s government prepares to annex Crimea after today’s referendum on secession from Ukraine. The “additional and far-reaching consequences” that were floated by the bloc on March 6 will be held back until EU leaders meet later this week in a bid to corral Putin’s ambitions in eastern Ukraine.

Juan Zarate, a former White House and U.S. Treasury Department sanctions official and the author of “Treasury’s War: The Unleashing of a New Era of Financial Warfare,” said in an interview that he expects the Obama administration and the EU to begin a “calibrated, escalatory financial campaign that demonstrates there are real costs in the short-term, but allows for diplomatic and financial off-ramps if there’s a breakthrough.”

The most significant diplomatic standoff between Russia and the west since the Cold War has rattled world markets as investors fret that an escalation of the crisis might isolate Russia from the global economy. That could disrupt global gas flows, damage the investments of companies from Siemens AG (SIE) to Exxon Mobil Corp. (XOM) and staunch the flow of money from Russian firms and oligarchs into western economies.

“Western governments have the power to put the Russian state into bankruptcy, and broad-based sanctions would have an enormously strong effect on Russia’s economy,” Fredrik Erixon, director of the European Centre for International Political Economy in Brussels, said by phone. “But I don’t think the west is even close to thinking on these terms. Sanctions can lead to unpredictable political consequences.”

Sanctions Coming

Secretary of State John Kerry told Congress last week that a “very serious series of steps” will come today from the U.S. and the EU if Russia moved to annex Ukraine’s southern Crimea region.

EU foreign ministers are due to gather in Brussels at 9.30 a.m. to discuss asset freezes and visa bans on people and “entities” involved in the Crimea seizure. They will also debate a range of additional measures that can be taken when leaders meet for a summit on March 20-21, an EU official involved in the preparations said on condition of anonymity.

Since EU leaders last met, the Ukraine crisis has buffeted Russian markets and weighed on global stocks as investors confront the implications of sanctions on a country that supplies Europe with about a third of its gas. Russia’s benchmark Micex index has plunged 15 percent since the end of February and U.S. and European shares fell last week by the most since January.

’Get Ugly’

The Obama administration will probably start by freezing assets of former Ukrainian President Viktor Yanukovych and 17 others associated with his government, echoing steps taken March 5 by the EU and Canada, with bans on some Russians also possible, U.S. officials said on condition they not be named because the actions are not yet public.

While Kerry warned last week that sanctions “can get ugly fast if the wrong choices are made,” measures cutting Russia off from the global financial system and embargoing its trade -- penalties like those that have strangled Iran’s economy -- remain a long way off and are unlikely to garner global support the way sanctions on Iran have, current and former U.S. officials say.

The debate in Washington and Brussels is over how far it makes sense to go, allowing Putin a face-saving way out before the situation deteriorates into tit-for-tat economic war, they say.

“The U.S. president has broad authority” to implement crushing sanctions even without additional authority from Congress, “but the question is how to implement it in a measured way to get Putin to back off without leading to a clashing of both economic powers,” Stuart Eizenstat, a former deputy Treasury secretary who led sanctions policy in the Clinton administration, said in an interview. “Miscalculations by both sides could sometimes result in actions that neither side wishes it had taken.”

Source:  Bloomberg

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