Kerry to Press Lavrov on Ukraine as Crimea Vote Nears

Photographer: Oli Scarff/Getty Images

U.S. Secretary of State John Kerry arrives at Number 10 Downing Street in London. Close

U.S. Secretary of State John Kerry arrives at Number 10 Downing Street in London.

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Photographer: Oli Scarff/Getty Images

U.S. Secretary of State John Kerry arrives at Number 10 Downing Street in London.

U.S. Secretary of State John Kerry arrived in London to press his Russian counterpart to halt a takeover of Ukraine’s Crimean peninsula after clashes killed one person and injured dozens in the country’s east.

The U.S. and European Union states are threatening sanctions against Russia if it doesn’t back down from annexing the mostly Russian-speaking Black Sea province, which is holding a referendum in two days to split from Ukraine and join the country’s former Soviet-era master. Ukraine’s Kiev-based government says Russian troops have taken over the southern region and are also massing on its eastern border.

“We’re all hoping that we don’t get pushed into a place where we have to do all this,” Kerry said during a meeting in which he discussed potential sanctions against Russia with U.K. Prime Minister David Cameron and Foreign Secretary William Hague. “But we’ll see what happens.”

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In the biggest dispute between Russia and the West since the fall of the Iron Curtain, the standoff is shaking markets and threatening to upset more than two decades of economic and diplomatic integration between former Cold War enemies. It’s also raising the risk that a lasting geographical conflict zone may emerge between Russia and the European Union.

“Russia will take Crimea,” Vladimir Elchenko, Ukraine’s ambassador to Russia, said in an interview yesterday in the embassy in Moscow. “But we’ll never recognize Crimea. And the world won’t. That will be a frozen, or not so frozen, conflict that will last for years.”

‘Serious Consequences’

In the eastern Ukrainian city of Donetsk yesterday, about 2,000 pro-Russian demonstrators clashed with a similar number of supporters of Ukraine’s new government. A pro-Ukrainian demonstrator was stabbed to death and 17 people were injured, the regional government said in a statement on its website, asking Putin “not to start a war on the territory of Ukraine.”

The U.S. is concerned that Russia is putting a large force on Ukraine’s eastern border for the second time in a month, a U.S. official said on condition of anonymity to discuss internal deliberations.

How the Crisis Began, Where It's Heading

Ukraine has asked the U.S. Defense Department for military assistance and equipment, according to an American defense official. While Pentagon officials haven’t rejected the request, they have indicated the focus at the moment should be on diplomatic and economic aid, said the official, who asked not to be identified discussing private communications.

U.S. officials see no indication of Russia softening or backing down, the official said.

Crimea Vote

Unless Russia shows some willingness “to move forward and resolve this issue, there will be a very serious series of steps on Monday in Europe and here with respect to the options that are available to us,” Kerry told a Senate panel yesterday.

Kerry’s meeting with Russian Foreign Minister Sergei Lavrov “will be a crucial moment, given the effective deadline of Sunday’s referendum, whether they want to de-escalate the situation,” Hague told reporters in London yesterday.

German Chancellor Angela Merkel said the Kremlin is risking “massive” political and economic damage and said the EU will prepare sanctions including bars on travel, freezing bank accounts and other measures on March 17 if it follows through with annexing Crimea. At his meeting with Kerry, Cameron said the U.K. backed a joint U.S.-EU position.

“I think the alignment of Britain and the European Union with the position that the US is taking is absolutely right,” Cameron said. “We must keep at them.”

Markets Hit

Russian government officials and businessmen are bracing for sanctions resembling those applied to Iran, though such penalties are an unlikely worst-case scenario, according to people with knowledge of the preparations.

As the standoff continued, Russia’s benchmark Micex stock index declined 4.5 percent to 1,192.29 by 11:40 a.m. in Moscow, a 24 percent drop from its January 2013 high. The gauge is poised for its biggest weekly slide since September 2011.

Bonds fell for a sixth day, driving up the yield on government debt due February 2027 32 basis points to a record 9.73 percent. The ruble is down 10.3 percent this year, making it the world’s second worse performing major currency tracked by Bloomberg after the Argentine peso. Russia’s central bank left its one-week auction rate unchanged at 7 percent after an unexpected increase last week failed to stop the ruble’s slide.

UN Resolution

The U.S. circulated to all 15 members of the Security Council a draft resolution on Ukraine that stops short of explicitly blaming or condemning Russia for violating Ukraine’s sovereignty. French Ambassador to the UN Gerard Araud said that France wants a vote on the resolution before the “illegitimate” referendum in Crimea.

While Russia would veto any such Security Council resolution, the purpose would be to send a message to Putin that he is becoming increasingly isolated, according to a UN diplomat who asking not to be named, citing policy.

The International Monetary Fund said a team that’s in Kiev assessing the needs of Ukraine’s economy will probably complete its work as early as today. The U.S. and its allies are seeking to bolster the country, which needs as much as $15 billion in loans to repay billions in foreign debt after investors withdrew funds and central-bank reserves plummeted.

The EU has outlined an 11 billion-euro ($15 billion) package of loans and grants tied to Ukraine agreeing on measures with the IMF. A U.S. offer of $1 billion in loan guarantees has been tied up in Congress in a dispute over increasing the U.S. quota for the IMF.

Concentrating Troops

Putin’s government contends ethnic Russians in Crimea are at risk after the ouster of Ukraine’s President Viktor Yanukovych, an assertion Ukraine’s new leaders deny. The Kremlin supports Crimea’s recently appointed administration, which organized the March 16 referendum.

Russia stepped up military maneuvers close to Ukraine, the Russian Defense Ministry said yesterday, according to Interfax. Andriy Parubiy, the head of Ukraine’s Security and Defense Council, said Russia has deployed 80,000 troops, 270 tanks and 140 military aircraft along the Ukraine-Russian border, he said, according to a March 12 statement.

Russian forces “aren’t conducting any military operations on Ukraine’s borders that would threaten Ukraine’s security,” Russia’s Deputy Defense Minister Anatoly Antonov said in a statement on the ministry’s website March 12.

To contact the reporters on this story: Indira A.R. Lakshmanan in Washington at ilakshmanan@bloomberg.net; Jake Rudnitsky in Kiev at jrudnitsky@bloomberg.net; Sangwon Yoon in United Nations at syoon32@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net Michael Winfrey, James M. Gomez

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