U.S. Preparing to Hit Russia With Fresh Sanctions

This article was originally published in Bloomberg News, Jul 16, 2014 

The escalating U.S. response to President Vladimir Putin’s refusal to end support for Ukrainian rebels would match or expand on actions being developed today by the European Union at a meeting in Brussels.

Those steps are expected to include limiting or ending Russia’s access to the European Bank for Reconstruction and Development and the European Investment Bank, along with sanctioning more Crimean individuals and institutions, according to two European diplomats who spoke on condition of anonymity because the talks are still going on.

President Barack Obama will wait until after the EU announcements to determine which new penalties to impose, several U.S. officials said. Among his options are limiting access for targeted Russian companies to debt markets and to technology with military applications, they said.

U.S. financial institutions and other major companies were preparing for the likelihood of sanctions on individual Russian banks, according to a person familiar with discussions between the businesses and the administration. The U.S. Chamber of Commerce and National Association of Manufacturers held a strategy session yesterday with representatives from about 20 companies.

Escalating Confrontation

A new round of penalties will escalate the confrontation between Russia and the U.S. and its allies. Putin’s government annexed Crimea from Ukraine in March and has rebuffed demands that Russia end support for rebels in eastern Ukraine.

Russia hasn’t acknowledged any direct support for the rebels, whom Ukrainian forces are trying to encircle and defeat in its eastern regions of Donetsk and Luhansk.

White House press secretary Josh Earnest declined to preview the president’s next steps. At a a midday briefing, Earnest didn’t rule out unilateral action by the U.S. while saying the administration will coordinate with allies.

Germany pushed hard for the European Council to sanction Russia, and Germans are tired of U.S. criticism that it is not doing enough.

“We continue to be concerned about Russia’s actions,” he said.

Troop Build-Up

Pentagon officials said Russian troops were amassing at the Ukraine border. There are now 10,000 to 12,000 Russian combat troops, up from a low of about 1,000, a presence that is “intimidating,” Army Colonel Steve Warren, a Pentagon spokesman, said at a briefing.

“It’s been building steadily over the last several weeks,” he said. The Russian military “certainly has the capability to conduct operations on either side of the border.”

While the number of Russian forces has been increasing recently, it hasn’t matched the peak of “tens of thousands” of forces that it staged on the border earlier in the confrontation, he said.

Russia’s OAO Gazprom (OGZD) is the main supplier of gas to Europe through Ukrainian pipelines.

Russia’s economy just skirted a recession last quarter even as capital markets seized up for Russia as the U.S. and EU clamped down on individuals and companies tied to Putin’s inner circle. The Finance Ministry warned last week that growth will slow to a crawl if stiffer sanctions are imposed.

Russia also faces possible risks that include disruptions of gas transit through Ukraine and trade sanctions by EU member states, the ministry said. Russia’s OAO Gazprom (OGZD) is the main supplier of gas to Europe through Ukrainian pipelines.

“Powerful Signal”

Annette Heuser, executive director of the Bertelsmann Foundation, an advocacy group in Washington, said she had “no doubt” that the European Council will agree to a new round of sanctions toward Russian companies that are destabilizing Ukraine, and that the sanctions will serve as “a very powerful signal.”

[…] At the end of the day, will be left alone with managing the crisis in Ukraine while the focus and the attention of the U.S. is shifting to the Middle East right now.

Germany pushed hard for the European Council to sanction Russia, and Germans are tired of U.S. criticism that it is not doing enough, Heuser said in a telephone call arranged by the Atlantic Council, a Washington policy group.

Obama and German Chancellor Angela Merkel spoke by telephone yesterday to discuss the situation in Ukraine as well as other issues.

Heuser said there is concern in Brussels and Berlin that the Obama administration “to a certain extent is losing the interests and the focus on Ukraine, and Europe, at the end of the day, will be left alone with managing the crisis in Ukraine while the focus and the attention of the U.S. is shifting to the Middle East right now.”

The Obama administration is preparing to announce a new round of sanctions aimed at squeezing Russia’s $2 trillion economy along with European Union moves to be announced as soon as today, according U.S. and European officials familiar with the administration’s plans.