July 15 (Bloomberg) -- The U.S. pressed the European Union to expand sanctions against Russia during a private meeting as the Obama administration prepared to act alone if necessary in response to the Ukraine crisis.
EU ambassadors were called to the White House yesterday for the closed-door session at which the U.S. urged the adoption of tougher measures to halt what American officials called Russian President Vladimir Putin’s destabilizing actions in Ukraine, according to three participants.
The Obama administration is ready to act unilaterally if EU leaders, during a meeting in Brussels tomorrow, balk at imposing sanctions that risk hurting their economies as well as Putin’s, said several U.S. officials involved in the deliberations.
The U.S. has drawn up sanctions designed to pinch Russia’s economy -- with or without its European allies -- by targeting financial institutions and the defense sector, the U.S. officials said, and measures could be imposed as soon as this week. The meeting participants and U.S. officials all spoke on condition of anonymity citing the sensitivity of the matter.
President Barack Obama, who would prefer backing from Europe, will wait at least until after tomorrow’s EU meeting to see if the allies back tougher penalties, these officials said.
As it pushed for European support, the Obama administration issued a “fact sheet” yesterday that said Russia is continuing a “policy of destabilization” in Ukraine, providing heavy weapons to pro-Russian separatists. Russia is also building up its own military forces near the Ukrainian border, according to the State Department.
“While Russia says it seeks peace, its actions do not match its rhetoric,” according to the U.S. statement. Russia has denied previous allegations that it’s responsible for fomenting turmoil in Ukraine.
German Chancellor Angela Merkel said today in Croatia she didn’t want to “preempt” tomorrow’s EU meeting because not all 28 members of the bloc have been heard. In Warsaw, Polish Foreign Minister Radoslaw Sikorski said today that the “unprecedented” fighting, including use of tanks and other heavy military equipment, is a “test of credibility” for the EU ahead of bloc’s summit.
French officials said further sanctions may be warranted because Russia hasn’t met conditions set by the U.S. and EU. Even so, they said tomorrow’s decisions should be limited to targeting new individuals or entities, not moving to so-called Level 3 sanctions, or measures that would hit entire economic sectors.
In the White House meeting, U.S. Deputy National Security Advisers Antony Blinken and Caroline Atkinson made the case that the EU can take measures that do more than add names to a blacklist, yet are less disruptive than sanctioning an entire sector of Russia’s economy, according to the participants.
Blinken and Atkinson suggested the EU could halt weapons deliveries to Russia, a move that would stop France’s 1.2 billion euro ($1.6 billion) deal to supply Russia with two Mistral helicopter carriers. Another proposal was to block targeted Russian entities’ access to debt markets.
Blinken also shared the latest U.S. intelligence on the Russian deployment of troops and transfer of weapons, according to the participants.
Some U.S. officials say they doubt EU leaders will reach agreement on tougher measures at tomorrow’s meeting. EU policies need unanimous consent, and states including Italy, Austria, Slovakia, France and Greece have raised objections.
During phone conversations over the past several days, Obama and the leaders of the U.K., France and Germany reaffirmed the conditions that Russia must meet to avert a stiffer round of sanctions, including halting the flow of Russian weapons and fighters into Ukraine; helping enforce a cease-fire between the Ukrainian government and separatist groups; and achieving the release of more than 150 hostages held by separatists.
While Ukrainian forces have made advances against the separatists in eastern Ukraine, the risks of a broader conflict were highlighted by the downing yesterday of a Ukrainian aircraft, according to the government in Kiev. The An-26 transport plane was shot down in eastern Ukraine by a “powerful weapon” not previously used by the separatists, probably from inside Russia, according to Ukrainian President Petro Poroshenko’s website.
U.S. authorities are ready with penalties that would deny certain targeted Russian entities access to financing and dual-use technology, according to officials who spoke on condition of anonymity because the plans are not public.
One proposal would bar American financial institutions from buying or selling assets of targeted Russian banks linked to Putin associates or individuals involved in the Ukraine intervention, according to two other U.S. officials who spoke on condition of anonymity to discuss non-public information.
That would prevent U.S. banks from underwriting, buying, selling or trading a targeted institution’s bonds, effectively blocking access to debt markets and financing, and it’s a measure the U.S. could impose unilaterally.
Another proposal would stop U.S. sales of dual-use technology, such as spare parts for helicopters, machine parts and drills that also have military applications. The measure would have less impact if the EU didn’t impose a similar ban on European companies that sell Russia such products.
EU states have studied halting new financing for Russia from the European Bank for Reconstruction and Development and the European Investment Bank, according to two European officials who asked not to be identified because of the sensitivity of the issue. Russia is the top recipient of project-financing from the London-based EBRD, amounting to 1.8 billion euros last year.
The EU last week agreed to add 11 people to a blacklist that now includes 72 individuals and two businesses facing European asset and travel bans for backing rebels in Ukraine. That and a similar U.S. Treasury Department list have been dismissed by advocates of stronger action as symbolic gestures.
While many Obama advisers are urging stronger action on sanctions, even if the Europeans don’t go along, the president could decide to go forward with limited steps or wait longer in search of a consensus with Europe.
Laura Lucas Magnuson, a White House National Security Council spokeswoman, said in an e-mail today that the U.S. remains “prepared to impose additional sanctions, should circumstances warrant, in coordination with our allies and partners.” She declined to discuss the timing of any possible sanctions, or whether any penalties are coming at all.
U.S. and EU leaders have sought to keep the threat of sanctions alive, with Merkel warning on July 2 that broader sanctions haven’t been ruled out. A day earlier, U.S. Treasury Secretary Jacob J. Lew said more penalties could drive Russia into recession.
EU and U.S. officials insist the mere threat of additional sanctions has hit Russia’s economy by stoking market uncertainty and discouraging investment. Russia is struggling to steady its $2 trillion economy in the face of an estimated $80 billion in capital outflows in the first five months of 2014 and a ruble that’s down more than 4 percent against the dollar this year.
Foreign banks have pulled back on lending to Russian commodity producers, with syndicated loans for Russian raw-material companies falling 82 percent in the first six months of 2014 from the previous year.
Putin has exploited EU discord, alternately threatening to retaliate if further steps are taken -- or dismissing sanctions talk as bluster. On July 8, Deputy Finance Minister Sergey Storchak said Russia would prepare “serious countermeasures” in the face of any sectoral sanctions.
While northern and northeastern nations in Europe, including Poland and the Baltic states, are pushing for stronger action, most EU members remain opposed or lukewarm to further steps, according to several European diplomats.
The reasons include a reliance on Russian capital, trade and tourism and concern that Russia would strike back by cutting energy supplies. Twelve EU states get more than half their gas from Russia. France objects to any military embargo that would imperil the Mistral delivery to Moscow, while the U.K. has expressed concern that banking bans would disproportionately hit its financial sector.
Merkel, whose country is a top Russian trade partner, has grown frustrated with Putin’s intransigence and is becoming more supportive of tougher penalties.
The U.S.-EU disunity has prevented the allies from acting decisively against Russia in response to the Ukraine crisis, said Andrew Weiss, a former Russia and Ukraine policy director at the National Security Council under President Bill Clinton.
“The U.S. is all sanctions and no diplomacy; the Europeans are invested in diplomacy, not sanctions,” said Weiss, who oversees research on Russia for the Washington-based Carnegie Endowment for International Peace. “It’s very lopsided.”
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