New Cold War May Emerge in Ukraine Crisis, Medvedev Says

May 20 (Bloomberg) -- Russian Prime Minister Dmitry Medvedev discusses sanctions and relations with the U.S. with Bloomberg's Ryan Chilcote.

Russia is being pulled into a new Cold War with the U.S. and its allies, who are using economic warfare reminiscent of the Soviet Union under Leonid Brezhnev, Russian Prime Minister Dmitry Medvedev said.

Russia has prepared a raft of retaliatory steps in response to potentially wider sanctions imposed by the U.S. and the European Union, Medvedev, 48, said yesterday in an interview with Bloomberg Television at his residence outside Moscow. While he didn’t give details of Russia’s potential steps, he described the punitive measures as a double-edged sword.

“We are slowly but surely moving toward a second Cold War, which no one needs,” Medvedev said. “We haven’t especially commented on” sanctions “or responded to them harshly, although we could do something unpleasant or offensive to those countries that are introducing these sanctions.” He blamed U.S. President Barack Obama, his one-time partner in a reset of relations, for a lack of “political tact.”

More on the Crisis in Ukraine:

Medvedev’s comments cast doubt on signs of an easing in tensions less than a week before Ukraine’s presidential election. President Vladimir Putin yesterday ordered Russian troops near the Ukrainian border back to bases and welcomed efforts at dialogue between the Kiev authorities and their opponents. NATO and the U.S. said they saw no signs of pullback.

Photographer: Andrey Rudakov/Bloomberg

Dmitry Medvedev, Russia's prime minister. Close

Dmitry Medvedev, Russia's prime minister.

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Photographer: Andrey Rudakov/Bloomberg

Dmitry Medvedev, Russia's prime minister.

Presidential Frontrunner

Russia, which brands as illegitimate the government that took power after the February ouster of Kremlin-backed President Viktor Yanukovych, hasn’t given a clear indication of whether it will recognize the results of the election. The frontrunner is billionaire Petro Poroshenko.

Medvedev also refused to guarantee that Russia won’t incorporate the Ukrainian regions of Donetsk and Luhansk, which voted to break away in disputed referendums this month, saying that the U.S. and the EU must pledge not to interfere in Ukraine and push it into NATO.

Standoff in Ukraine

“We don’t have to guarantee anything to anyone because we never undertook any obligations on this matter,” Medvedev said. “The most important task is to calm down the situation in Ukraine.”

Medvedev, who was president from 2008 to 2012 during a period of rapprochement with the U.S., said he was personally disappointed in Obama’s handling of the Ukraine crisis.

Cooperation Damaged

“I’m very sorry that what we achieved then, the results we got, are now being reduced to zero,” he said.

The U.S. and the EU accuse Putin of stoking unrest by pro-Russian separatists in the east and south of Ukraine. Russia, which annexed Ukraine’s Black Sea Peninsula of Crimea in March, denies this and is urging a decentralization of power in its former Soviet neighbor.

Though the presidential election may offer a way out of the crisis by delivering a leader who enjoys support across Ukraine, it’s the result of an “anti-constitutional change of power,” Medvedev said. If certain regions don’t take part in the polls, this will cast doubts on its legitimacy, he said.

Adding to the pressure, Russia is threatening to cut off natural gas supplies to Ukraine next month unless it starts to prepay for the fuel after accumulating $3.5 billion of debt in unpaid bills. Medvedev said the government in Kiev must present a timetable for the settlement and make a “substantial” initial payment.

Ukraine rejected a more than 80 percent increase in Russian gas prices to $485 per 1,000 cubic meters in April after the Kremlin canceled discounts offered to Yanukovych in 2010 and last December.

‘Fundamentally Different’

A new Cold War leading to decades of ideological and geopolitical divide is unlikely because Russia is far weaker than the Soviet Union, said Bobo Lo, an associate fellow at the Russia and Eurasia Programme at London-based research group Chatham House. Even so, the disagreement over Ukraine will poison ties for the foreseeable future, he said.

“The problem here is that America, Europe and Russia have fundamentally different visions of how Ukraine should develop,” Lo said by phone from London. “It’s such a fundamental problem that it is difficult to be optimistic that it will be overcome any time soon.”

Russia has warned against any Ukrainian bid to join the North Atlantic Treaty Organization and last year pressured Yanukovych to walk away from an EU trade pact by threatening reprisals. That provoked months of protests which led to his overthrow.

Further Sanctions

The U.S. and Europe say they will impose further sanctions on Russia if it disrupts the Ukrainian presidential election, while several top-level executives canceled plans to attend Russia’s annual investment forum in St. Petersburg this week, in another sign of Putin’s growing isolation.

Those decisions were the hallmarks of Soviet policy during the Brezhnev era that represent a “dead end,” Medvedev said.

“This is ideologization of the economy,” he said. “It’s exactly what we had during a certain period of the Soviet Union when it adopted bans on which countries not to trade with because they didn’t suit our country. That’s exactly what the U.S. administration is doing now.”

(A previous version of this story was corrected to say NATO, U.S. haven’t seen signs of pullback.)

To contact the reporters on this story: Ryan Chilcote in Moscow at rchilcote@bloomberg.net; Henry Meyer in Moscow at hmeyer4@bloomberg.net; Olga Tanas in Moscow at otanas@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net Scott Rose, Paul Abelsky

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