Russia Sanctions Choice Puts Obama in Political Bind

Photographer: Alexey Kudenko/Host Photo Agency via Getty Images

U.S. President Barack Obama and Russian President Vladimir Putin. Close

U.S. President Barack Obama and Russian President Vladimir Putin.

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Photographer: Alexey Kudenko/Host Photo Agency via Getty Images

U.S. President Barack Obama and Russian President Vladimir Putin.

President Barack Obama risks Republican attacks whether or not he imposes new sanctions on Russia over its aggression toward Ukraine.

If he goes ahead without Europe, he’ll face charges that he’s hurting U.S. companies that do business with Russia. If he stops short of new sanctions, those urging an assertive foreign policy will accuse him of caving to Russian President Vladimir Putin.

Given the dilemma, Obama will be hard-pressed to move forward unless he can bring along European allies and a bipartisan contingent in Congress for additional sanctions, said former U.S. Defense Secretary William Cohen, a Republican who also served in the Senate from Maine.

Some Republican will say, “‘You’re killing American business’” with new economic penalties, Cohen said in an interview.

Subject to Sanction

Senator Bob Corker of Tennessee, the top-ranking Republican on the Foreign Relations Committee, offers the counter view. “There are times where our foreign policy interests trump individual mercantile interests, and now is one of those times,” he said of the need for more sanctions.

The conflicting impulses among Republicans will put Obama and his fellow Democrats in the position of sustaining political attacks from one wing of the opposing party or the other in advance of November’s midterm elections.

Reluctant Europe

Obama so far has emphasized unity with European allies. Still, Obama will be under pressure to move unilaterally if German Chancellor Angela Merkel and other European leaders don’t back more aggressive sanctions and Russia continues to undermine Ukraine’s government. Some U.S. lawmakers from both parties said they are likely to back such moves.

Senator John McCain, an Arizona Republican, and Senate Foreign Relations Committee Chairman Bob Menendez, a New Jersey Democrat, are among those pushing Obama to take stronger action -- with or without America’s European allies.

Anticipating such action, two leading groups representing U.S. business, the National Association of Manufacturers and U.S. Chamber of Commerce, this week began an advertising campaign to try to preempt unilateral sanctions. They’re raising concerns about the potential impact on the energy, technology and banking sectors, and urging Europe to act in concert with the U.S.

Linda Dempsey, vice president of international economic affairs for the manufacturers’ group, said any U.S.-only moves would hurt American business without doing much to deter Russia.

“Our competitors in Europe and Asia are going to easily fill the void,” she said.

Security ‘Obligation’

Even as they acknowledge the economic argument, some Republicans stress the need for a tough stance against Russia.

“We certainly don’t want to disadvantage our economy given the fact that it just shrunk by almost three points in the first quarter of this year,” said Senator Marco Rubio of Florida, a potential 2016 Republican presidential candidate. “But we also have an obligation to our national security and our national security interests around the world, and having a stable Europe is critical.”

Amid the threat of new penalties, Russia’s Micex Index (INDEXCF) fell 0.6 percent to 1,473.18 by the close in Moscow. That pares to 2 percent its advance since Feb. 28, the day before Putin won parliamentary approval of a resolution authorizing military intervention in Ukraine.

The U.S. and European allies imposed sanctions about two months ago on a small number of people and companies close to Putin. The list of people forbidden to do business with the U.S. includes Rosneft Chief Executive Officer Igor Sechin and financial institutions such as OAO Bank Rossiya and SMP Bank.

Affected Companies

U.S. companies that would be most affected by new sanctions that target the energy sector include Halliburton Co., Exxon Mobil Corp. and National Oilwell Varco Inc.

John Feehery, a Republican political strategist, said that the effect of new sanctions by themselves on the midterm elections likely would be limited.

“On its own, it’s not going to have that much of an impact,” he said. “I can see bigger implications if it all turns drastically wrong.”

European leaders are set to meet with Ukraine’s President Petro Poroshenko in Brussels today to discuss the violence in his country sparked by Russian-backed separatists, which has continued even during an announced cease-fire.

Progress “hasn’t been as apparent as I would have wished, considering the seven-day cease-fire,” Merkel told reporters yesterday before the European Union summit started. Leaders of the 28-nation bloc “will discuss how much further we want to go with sanctions,” after hearing from Poroshenko, Merkel said.

Obama’s Outreach

Obama has been making the case for a multilateral approach in responding to the Ukraine crisis, with phone calls this week on it to Merkel, French President Francois Hollande, U.K. Prime Minister David Cameron and Italian Prime Minister Matteo Renzi.

Senator Carl Levin, a Michigan Democrat and chairman of the Armed Services Committee, said while he is a “real strong supporter of Ukraine” and of putting pressure on Russia, “If the EU said no, I’d have to know what the reasons are before I could say if we should proceed unilaterally.”

“Putin tends to listen to Merkel more than just about anyone else,” Levin said.

William Browder, founder of London-based Hermitage Capital Management Ltd., said the U.S. “would obviously like to impose sanctions in a coordinated manner with Europe, but if Europe shows a complete paralysis on getting sanctions through, I predict the U.S. would do something unilaterally.”

Putin’s Aim

The question, he said in an e-mail, is not whether businesses will be hurt, “but rather, whether the economic costs and strategic costs will be higher in the future by not doing anything now.”

Putin “will continue to push the West as far as he can,” Browder said. “Putin’s operation in Ukraine is designed for him to keep the Russians in a nationalistic frenzy. He needs this to stay in power and there is no chance he will genuinely back off.”

Ron Bonjean, a Republican strategist who worked in leadership offices in the U.S. House and Senate, said that whichever route the president picks, he can expect to find Republicans waiting to hammer him.

“It’s going to be tough for Obama to keep business interests and Republican defense hawks both happy,” Bonjean said.

To contact the reporters on this story: Margaret Talev in Washington at mtalev@bloomberg.net; Kathleen Hunter in Washington at khunter9@bloomberg.net

To contact the editors responsible for this story: Steven Komarow at skomarow1@bloomberg.net Don Frederick

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