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Kerry Makes Push to Ease Ukraine Tension in Lavrov Talks

Photographer: Maksim Murasenko/Anadolu Agency/Getty Images

U.S. Secretary of State John Kerry arrives in Kiev on March 4, 2014. Close

U.S. Secretary of State John Kerry arrives in Kiev on March 4, 2014.

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Photographer: Maksim Murasenko/Anadolu Agency/Getty Images

U.S. Secretary of State John Kerry arrives in Kiev on March 4, 2014.

U.S. and Russian diplomats will meet today to discuss the crisis in Ukraine, heading a global diplomatic push to ease tension as forces in Crimea square off and the Obama administration maintains the threat of sanctions against President Vladimir Putin’s government.

U.S. Secretary of State John Kerry is set to meet in Paris with his Russian counterpart Sergei Lavrov, who said yesterday that the threat of sanctions won’t change his government’s position. Putin yesterday said there was no immediate need to invade Ukraine, though he reserved the right for military action to defend ethnic Russians in the region.

The U.S. and Europe have stepped up efforts to contain the crisis since pro-Russia forces took control of the Crimean peninsula. French Foreign Minister Laurent Fabius said on RMC Radio today that France and Germany will present a plan and warned Russia that the European Union could impose sanctions if there is no progress. Fabius will meet with Ukraine Foreign Minister Andriy Deshchytsia in Paris today.

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“We will see if we can advance on the path of dialog,” Fabius said today. “Tomorrow we could decide on sanctions if there isn’t a de-escalation, that is, the acceptance of a contact group.”

Photographer: Mikhail Klimentyev/AFP/Getty Images

Vladimir Putin, Russia's president, left, listens to Ivan Buvaltsev, head of the Russian army's main department of combat preparation, while watching military exercises at the Kirillovsky firing ground in the Leningrad region on March 3, 2014. Close

Vladimir Putin, Russia's president, left, listens to Ivan Buvaltsev, head of the... Read More

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Photographer: Mikhail Klimentyev/AFP/Getty Images

Vladimir Putin, Russia's president, left, listens to Ivan Buvaltsev, head of the Russian army's main department of combat preparation, while watching military exercises at the Kirillovsky firing ground in the Leningrad region on March 3, 2014.

Needing Protection

Global stocks rebounded yesterday after Putin’s remarks stirred optimism that the worst standoff between Russia and the West since the end of the Cold War is cooling. The U.S. and Europe, which have decried Russian military activity in Crimea, are racing to seal aid to help the new government in Kiev avoid bankruptcy. Russia is also staking its own claim, saying Ukraine owes state-controlled energy giant OAO Gazprom (GAZP) $2 billion.

Ukraine’s finances are in a “difficult situation” and the country’s government hopes the EU will announce aid “in days,” Prime Minister Arseniy Yatsenyuk said at a cabinet meeting in Kiev today.

A Snapshot of Ukraine's Past and Future

Putin yesterday said that extremists orchestrated a coup to dislodge President Viktor Yanukovych and that Russian speakers in Ukraine’s east and south need protection. Ukraine’s acting President Oleksandr Turchynov has said Russians aren’t at risk, while warning that a military invasion would be an act of war.

U.S. President Barack Obama also challenged Putin’s rationale for intervening as Kerry unveiled $1 billion in loan guarantees to Ukraine’s government during his Kiev visit.

Jets and Tanks

Russia has 16,000 troops in the Crimea region, while it’s permitted to have as many as 25,000, Vitaly Churkin, Russia’s ambassador to the United Nations, said March 3. Its military also began exercises near Ukraine’s eastern border last week. The drills, which involved fighter jets and tanks, ended yesterday.

Photographer: Daniel Roland/AFP/Getty Images

A TV screen showing Russian President Vladimir Putin is photographed at the stock exchange in Frankfurt on March 4, 2014. Stocks rebounded worldwide yesterday after Putin’s remarks stirred optimism that the worst crisis between Russia and the West since the end of the Cold War is cooling. Close

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Photographer: Daniel Roland/AFP/Getty Images

A TV screen showing Russian President Vladimir Putin is photographed at the stock exchange in Frankfurt on March 4, 2014. Stocks rebounded worldwide yesterday after Putin’s remarks stirred optimism that the worst crisis between Russia and the West since the end of the Cold War is cooling.

Much of a 90-minute call on March 1 between Obama and Putin was taken up by Putin making claims about the situation in Ukraine, including threats to ethnic Russians, while Obama pushed back, disagreeing on their veracity, according to a U.S. official who briefed reporters yesterday on condition of anonymity. The official described the leaders’ differences as significant.

During that call, Obama also outlined a possible exit for Putin that would involve Russia pulling troops back to bases, agreeing to mediation and using Ukraine’s elections in May as a steppingstone to legitimacy. Putin acknowledged the informal proposal without endorsing it.

No Annexation

The U.S. won’t entertain discussion of Russia annexing Crimea as part of negotiations to end the crisis, and any such move should be left to the Ukrainian people, the official said. Obama and Putin are expected to talk again soon, though a call hasn’t been scheduled, the official said.

So far, the official said, the U.S. doesn’t see any sign of escalation beyond Crimea. Even so, the U.S. continues to weigh sanctions on Russia and plans to calibrate its response to the crisis over the course of the next week, the officials said. Any major sanctions would be coordinated with Europe.

“From the Russian point of view, they look at states on their borders as part of their historical heritage and if there are ethnic Russians in those countries, Putin feels obligated to assist them,” Theodore Karasik, director of research at the Institute for Near East and Gulf Military Analysis in Dubai, said by phone. “The mindset of the West and Russia immediately collide on this issue.”

No Escalation

U.S. officials traveling with Kerry said sanctions such as travel and asset bans on Russian individuals and institutions are likely within days if Russia doesn’t de-escalate actions in Ukraine and return forces to barracks. They spoke on condition they not be named because the penalties aren’t finalized.

Kerry was in Ukraine’s capital yesterday to underscore U.S. support for the new government led by Premier Arseniy Yatsenyuk.

An International Monetary Fund team was also due in Kiev yesterday to assess the country’s needs. Ukraine, a key transit nation for Russian energy supplies to Europe, needs $15 billion in the next 2 1/2 years to stay afloat, Finance Minister Oleksandr Shlapak said March 1.

Russia may lend $2 billion to $3 billion to Ukraine to help pay debts to Gazprom, Premier Dmitry Medvedev said yesterday. The exporter decided against prolonging a discount on natural gas prices after April because of the debt.

Stock Rebound

As military tensions eased, the MSCI All-Country World Index rose 1.2 percent, rebounding from its biggest drop in a month. Russia’s Micex Index climbed 5.3 percent yesterday after $55 billion was erased from the value of the country’s equities on March 3. The index fell 1.4 percent to 1,337.03 at 12:55 p.m. in Moscow.

Crimea, where ethnic Russians comprise the majority, has become the focal point of Ukraine’s political crisis after Yanukovych fled to Russia. Putin hasn’t heeded warnings from foreign governments to scale back his military’s presence in Ukraine, NATO Secretary General Anders Fogh Rasmussen said.

“Despite repeated calls by the international community, Russia continues to violate Ukraine’s sovereignty and territorial integrity and continues to violate its international commitments,” he told reporters yesterday in Brussels.

Crimea was given to Ukraine by Russia in 1954 by then-Soviet leader Nikita Khrushchev. People who identified themselves as ethnic Russians comprise 59 percent of Crimea’s population of about 2 million, with 24 percent Ukrainian and 12 percent Tatar, according to 2001 census data. Russians make up 17 percent of Ukraine’s entire population of 45 million.

To contact the reporters on this story: Ilya Arkhipov in Moscow at iarkhipov@bloomberg.net; Indira A.R. Lakshmanan in Washington at ilakshmanan@bloomberg.net; Stepan Kravchenko in Simferopol at skravchenko@bloomberg.net

To contact the editors responsible for this story: John Fraher at jfraher@bloomberg.net; Balazs Penz at bpenz@bloomberg.net

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