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Kerry Arrival in Kiev Puts Him on Russia Diplomacy Frontline

March 4 (Bloomberg) -- Secretary of State John Kerry arrived today in Kiev as the U.S. and its European allies sought ways to increase economic and diplomatic pressure to deter Russian military escalation in Ukraine’s Crimea region.

Kerry’s stop in the Ukrainian capital raises the stakes by putting him on the diplomatic front lines of an increasingly tense standoff. Ukraine’s acting President Oleksandr Turchynov said yesterday that Russia threatened to seize Ukrainian warships if they don’t surrender, and there were reports of more Russian troops moving into Crimea. Earlier, Russia denied a report that it had given the ships, located near the port of Sevastopol, a deadline to capitulate.

A Russian ultimatum to Ukraine “would constitute a dangerous escalation of the situation for which we would hold Russia directly responsible,” U.S. State Department spokeswoman Jen Psaki told reporters yesterday.

The U.S. administration is preparing sanctions to punish Russia for its military action in Crimea, and will announce an assistance package aimed at bolstering the fledging Ukrainian government, according to U.S. officials traveling with Kerry who spoke on condition they not be named because the penalties are not finalized. Travel and asset bans on Russian individuals and institutions are likely within days if Russia doesn’t de- escalate its actions in Ukraine and return its forces to barracks, the officials said.

Ukraine Test

Ukraine is becoming a test of whether Western economic and diplomatic weapons -- including sanctions -- can have much impact on Russian President Vladimir Putin, who has sent military forces into Crimea and threatened to intervene elsewhere in Ukraine in the name of protecting ethnic Russians. In doing so, U.S. and European officials said, Putin has violated several treaties, as well as the United Nations Charter, which under-gird security and stability in Europe.

Putin said today Russia had no intention of annexing Crimea, though he called the ouster of pro-Russian President Viktor Yanukovych an illegal coup. Delivering his first public remarks since the overthrow, Putin called his military’s intervention in the Ukrainian region “completely legitimate.”

President Barack Obama, speaking to reporters yesterday before a White House meeting with Israeli Prime Minister Benjamin Netanyahu, said the U.S. and allies are preparing sanctions to show Russia its actions will be “costly.”

‘Isolate Russia’

“We are examining a whole series of steps -- economic, diplomatic -- that will isolate Russia” if it continues on its current course, said Obama, who spoke to Putin by telephone on March 1. One option he cited would be to send international monitors to “de-escalate the situation.”

Obama met for more than two hours last night with his National Security Council to discuss further steps the U.S. can take to pressure Russia into defusing the crisis, according to a senior administration official who described the closed-door session on condition of anonymity.

The Senate Foreign Relations Committee is “consulting with the administration on possible sanctions actions against individual Russians and Ukrainians that range from visa bans and asset freezes, to the suspension of military cooperation and sales, as well as economic sanctions,” the panel’s chairman, Democratic Senator Robert Menendez of New Jersey, said in an e- mailed statement.

European Union President Herman Van Rompuy yesterday called a March 6 emergency EU summit, where leaders may debate measures to punish Russia if it doesn’t ease the crisis.

EU Ties

European foreign ministers “strongly condemned” Russia’s moves in Crimea. “In the absence of de-escalating steps by Russia, the EU shall decide about consequences for bilateral relations between the EU and Russia,” including suspending talks to deepen trade ties and ease European travel for Russian citizens as well as “further targeted measures,” the ministers said in a statement yesterday.

Russia raised its main interest rate the most since 1998 as its currency plunged to a record low and investors pulled money from the stock market on tensions over Ukraine. The ruble extended its decline to a record 42.6334 against the central bank’s basket at 6 p.m. yesterday in Moscow. The Micex, Russia’s benchmark stock index, fell 11 percent yesterday, the biggest decline since November 2008. OAO Gazprom, which sends half its natural gas exports to Europe through Ukraine, fell 14 percent.

Matthew Rojansky, director of the Kennan Institute at the Wilson Center, a Washington policy group, said non-military pressure on Putin could be very effective.

Russian Economy

“The last decade has been a story of Russia’s economic growth as it becomes a fully integrated part of the international economy,” he said in a telephone interview. “The flip side is that Russia can’t act without seeing the effects on the Russian economy.”

Rojansky pointed to the “massive devaluation of the ruble, the massive slide on the stock market” and said “it can get much worse” if the U.S. and EU decide to freeze the assets of Russian companies.

The U.S. and allies already have halted preparations for the Group of Eight summit planned for June in Sochi, Russia. The U.S., the U.K., Canada, France, Germany, Italy and Japan condemned in a statement Russia’s “clear violation of the sovereignty and territorial integrity of Ukraine.” Kerry said in a March 2 appearance on CBS’s “Face the Nation” that Russia risked being expelled from the G-8.

Military Cancels

The Pentagon suspended military ties with Russia because of the crisis, a move that affects military exercises, bilateral meetings, port visits and planning conferences, Navy Rear Admiral John Kirby said yesterday in a statement. The U.S. also halted bilateral trade and investment talks with Russia, Trevor Kincaid, a spokesman for the U.S. Trade Representative’s Office, said yesterday in an e-mail.

Charles Kupchan, a professor at Georgetown University in Washington, said nothing the West can do including isolating Russia diplomatically -- by suspending the G-8 summit and the NATO-Russia Council -- and boosting North Atlantic Treaty Organization engagement on the alliance’s eastern frontier is likely to reverse Putin’s course.

“None of those are sufficiently potent to get Putin out,” Kupchan said on a conference call with reporters yesterday. “Unfortunately he has really moved in, in a big way in the last 48 hours.”

Crimea, where ethnic Russians comprise the majority, has become the focal point of Ukraine’s crisis after an uprising triggered last month’s ouster of Yanukovych. Ukraine mobilized its army and called for foreign observers after Russian forces took control of the peninsula.

Extremist Threats

Russia’s ambassador to the UN, Vitaly Churkin, yesterday called the intervention a legitimate response to threats posed by extremists to his country’s security and to the safety of millions of Russian-speaking compatriots in southeastern Ukraine. He said during a meeting of the UN Security Council in New York there were more than 16,000 Russian troops in the region, and that an accord allows it to have as many as 25,000.

Churkin’s remarks drew sharp condemnation from Samantha Power, the U.S. ambassador to the UN, who called Russia’s mobilization a “response to an imaginary threat.”

The political arm of the 28-nation NATO military alliance, the North Atlantic Council, called a meeting for today at the request of Poland, a member state neighboring Ukraine.

Warsaw Pact

Poland, which was part of Moscow’s Warsaw Pact alliance during the Cold War, asked for the meeting under Article 4 of the NATO treaty, which calls for consultations when a member considers its independence or security threatened. It’s rarely been invoked and sends a political symbol that NATO is concerned. It is a less strong provision than the Article 5 mutual defense clause.

Ukraine isn’t a member of NATO and so isn’t covered by the alliance’s defense umbrella, though some members with a history under Soviet domination such as Poland, Romania, and the Baltic nations have joined the alliance.

Thomas Pickering, a former U.S. undersecretary of state and ambassador to Russia from 1993 to 1996, said his biggest concern was over-reaction on both sides.’’ Putin’s “success in Crimea so far might move him to think that in the next week he can move forces into eastern Ukraine.”

‘Slow Down’

The best option for the U.S. would be to “see what you can do to slow down, if not stop, Russian expansionist efforts” and work with the European Union and the International Monetary Fund to help restore stability in Ukraine, Pickering said in a phone interview.

Suspending talks on a trade and partnership pact was the EU’s response the last time Russia invaded a neighbor, by attacking Georgia in 2008. In September of that year, EU governments halted the process, resuming it two months later. The negotiations have made little headway since then.

The EU urged Putin to take up direct peace talks with Ukraine’s new government “without delay.” Possible mediators include the UN or the Organization for Security and Cooperation in Europe, a 57-nation forum that includes Russia and the U.S.

A range of diplomatic and economic measures would have a damaging impact on Russia, even considering that it holds some $500 billion in foreign reserves, Rojansky said in a phone interview.

Even so, Rojansky said he doubts that Putin will back down because Ukraine is essential to his vision of a Eurasian Union as a counter to the European Union and because his personal authority is intertwined with that project.

Russian Authority

“His reputation of a man who sets out a goal and delivers is the underpinning of his authority in Russia,” he said.

The U.S. has to be careful not to overstate its commitments in Ukraine because “we do not have a lot of levers we can pull” to influence Russia, said Sean Kay, a professor of international relations at Ohio Wesleyan University who specializes in Europe.

“We have at best peripheral interests in Ukraine,” Kay said in a phone interview. “The Russians have vital interests in Ukraine. There are dangers of creating false promises of what we might be able to do in Ukraine.”

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