Lavrov Says Russia Outraged by Clash, No Invasion Plans

Russia remained on collision course with the West over Ukraine’s separatist Crimea region as six hours of talks between the country’s top diplomat and his U.S. counterpart failed to ease tensions.

President Vladimir Putin “is not prepared to make any decision regarding Ukraine until after the referendum on Sunday” on joining Russia, U.S. Secretary of State John Kerry told a news conference after the meeting in London today. Russia “will respect the will of the Crimean peoples,” Russian Foreign Minister Sergei Lavrov told a separate news conference, saying there’s “no common vision” on resolving the crisis.

The U.S. and the European Union are threatening sanctions against Russia if it doesn’t back down from annexing Crimea. Ukraine’s cabinet in Kiev says Russia has taken over the southern region and is massing troops on its border. Estonia’s defense minister said today the Kremlin is preparing to invade the east of Ukraine.

Kerry repeated that Russia faces “consequences” if it doesn’t change course and that there’s a better way for the government in Moscow to pursue its “legitimate interests” in Ukraine, the second most populous former Soviet republic. Lavrov expressed outrage over deadly clashes yesterday between pro-Russian and anti-Russian demonstrators in eastern Ukraine, while adding that “the Russian Federation has no plans to invade.”

Cold War

The biggest dispute between Russia and the West since the fall of the Iron Curtain is shaking markets and threatening to upset more than two decades of economic and diplomatic integration between the former Cold War enemies.

Russian stocks posted the biggest weekly drop since May 2012. The Micex Index lost 0.9 percent by the close to 1,237.43, the lowest level since May 2012. Russia’s 10-year bond fell for a sixth day, driving up the yield by 32 basis points to 9.68 percent, the highest level since 2009. The ruble weakened 0.3 percent to 43.0934 against Bank Rossii’s target basket of dollars and euros by 6 p.m. in Moscow. Gold climbed to the highest in sixth months.

The UX index of Ukrainian stocks fell 0.3 percent, extending this week’s decline to 7.6 percent. Still, Ukrainian Eurobonds and the hryvnia rebounded after Lavrov’s comment that Russia has no invasion plans.

‘Pretty Late’

“We have obviously not gotten to a situation where Russia has chosen to de-escalate” and that is “regrettable,” White House spokesman Jay Carney told reporters in Washington. “We are pretty late in the game here with regards to the situation in Crimea,” he said, adding that the U.S. stands “ready to respond” should the referendum “go forward.”

Kerry said the U.S. is concerned about the positioning of Russian troops in the Crimean peninsula, where Russia has military bases, and near the Ukrainian border. A freeze in deployments would allow time for further diplomacy, he said, calling for “actions not words.”

Lavrov described as “outrageous” clashes between pro-Ukrainian and pro-Russian demonstrations in Donetsk, in which one protester died and 17 people were injured, according to the regional government.

“Militants came to Donetsk from other regions and started fighting with demonstrators,” Lavrov said.

Russian ‘Responsibility’

Earlier today, the Foreign Ministry in Moscow said in a statement that “Russia is aware of its responsibility for the lives of its countrymen and citizens and reserves the right to defend people.”

Ukraine’s Foreign Ministry responded by saying the Russian statement was “striking in its cynicism and irresponsibility” and that Russian individuals and groups had “arrived in Ukraine to escalate tensions.”

Russia may be provoking some of the clashes in Ukraine to justify extending a military incursion, said Oleksiy Haran, a professor of comparative politics at the Kyiv-Mohyla Academy.

“Russia is destabilizing the situation in eastern Ukraine on purpose and is ready to use anything it can,” Haran said by phone. “Provocations are resulting in people’s deaths, and then Russia uses it to begin wide-scale aggression against eastern Ukraine’s regions.”

“In addition to occupying the Crimea, Putin is preparing to also invade eastern Ukraine,” Estonian Defense Minister Urmas Reinsalu said in an e-mailed statement. “To deter him, a clear message needs to be sent that an attack will cost the aggressor dearly.” Estonia, a former Soviet republic, is now a member of NATO.

EU Sanctions

EU foreign ministers, who meet the day after the vote in Crimea, are poised to impose asset freezes and visa bans on people and “entities” involved in Russia’s seizure of the peninsula, leaving the next stage of sanctions to be weighed at a summit at the end of next week, an EU official said.

“All the detailed preparation that needs to be done is being done,” U.K. Prime Minister David Cameron’s spokesman, Jean-Christophe Gray, told reporters in London.

Chancellor Angela Merkel won the support of German industry for sanctions against Russia after saying at an event in Munich that Germany can withstand the economic impact of any measures taken. Ulrich Grillo, president of the BDI industry federation, told the same event he backs the chancellor “fully.”

“We continue to watch Russian military movements closely,” Pentagon spokesman Rear Admiral John Kirby said in an e-mail. “As before, we call on Moscow to de-escalate the tension, remove their troops and respect the sovereignty of Ukraine.”

Next Week

Crimean Premier Sergei Aksenov told reporters in the region’s capital, Simferopol, that the peninsula may formally become part of Russia next week, though full integration may take a year. Turnout in the referendum is expected to be more than 80 percent, he said.

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.

The U.S. circulated a draft United Nations Security Council resolution on Ukraine yesterday that stops short of explicitly blaming or condemning Russia for violating Ukraine’s sovereignty. France’s UN ambassador, Gerard Araud, said his government wants a vote before the “illegitimate” Crimea referendum.

Before it's here, it's on the Bloomberg Terminal.