Author: Dr. Abdul Ruff
Edited by Divas
Since the World War I, USA and Russia have been engaged in war politics – both hot and cold. And often they clash on alien territories to play this type of politics.
By citing the fast developing nature of the situation in Ukraine where Russia has already entered to what it says “normalize” the political situation to suit the Kremlin interest, Washington is weighing an array of economic weapons to penalize Russia for its armed intervention in Ukraine, from asset freezes to expelling Moscow from the G8 group of states, but may find Europe, needing Russian gas and oil more reluctant to resort quickly to sanctions.
US President Barack Obama needs Europe to join to make sanctions tough enough to potentially deter Russian President Vladimir Putin.
Obama is focusing first on measures that would not require congressional action and is seriously considering an executive order imposing asset freezes and visa bans on Russian officials.
Such an order could be drawn narrowly to focus on Russian officials directly involved in the intervention in Ukraine’s Crimea or more broadly to target a wider range of Russian officials.
Officially, USA and EU want to target Russia’s membership in the G-8 group of major industrialized countries, a prestigious economic club that brings Russia together with the United States, the United Kingdom, Canada, France, Germany, Italy and Japan.
Leaders of the G-7, which does not include Russia, said on Sunday they were suspending participation in talks to prepare for a G-8 summit in Sochi, Russia, this summer.
Canadian Prime Minister Stephen Harper said Russia might be ejected from the group if Putin does not change course.
“President Putin’s actions have put his country on a course of diplomatic and economic isolation that could well see Russia exit the G8 entirely,” Harper said.
The G-7 also could meet by itself, excluding Russia without formally ending the broader group.
West is also eager to target Russian banks. US Treasury officials said moves against Russian banks suspected of illicit financing would take time, but would eventually have an impact, and would have the added benefit of exposing Russia’s financial backing for Syrian President Bashar al-Assad.
Cutting Russian banks off from the U.S. financial system could hurt them significantly. But Washington would need solid evidence of illicit financial conduct.
The Washington-based Center for Strategic and International Studies says the USA could also hunt for assets controlled by Putin and his close allies, something it has never openly done,
Washington can blunt European dependence on Russian energy. Several EU member states, particularly in the Baltics, rely almost entirely on Russian oil and gas supplies, while even major countries such as Germany, France and Italy import 25 to 35 percent of their gas from Russia.
Overall, around 35 percent of all the gas imported to the EU from Russia transits via Ukraine. A European Commission spokeswoman said the EU, after a warm winter, had enough gas in storage to meet almost 10 percent of annual needs. Europe could increase storage capacity to buffer it further.
Longer term, there are also calls for Europe to diversify by developing capacity for liquefied natural gas, which can be shipped. Some US energy industry supporters are eager to help.
LNG supplies from the United States or the Middle East could help some Western European countries react to any Russian aggression in coming years, although added transportation costs could be too expensive for others in Central Europe who are likely to remain dependent on neighbors.
The U.S. energy transformation of recent years gives EU options they didn’t have several years ago. So they would explore using those options.
USA might also cut back on US-Russian bilateral trade. Trade in goods between the two countries was worth $38.12 billion in 2013 and U.S. firms have $14 billion in direct investment in Russia.
Russia and the United States had started talking about a bilateral investment treaty, but a planned visit by U.S. trade officials to discuss that treaty has now been scrapped.
Office of the US Trade Representative said they have suspended upcoming bilateral trade and investment engagement with the government of Russia that were part of a move toward deeper commercial and trade ties.
British PM David Cameron, reflecting the American line, has warned Russia it will pay significant costs unless it changes course. “The Russian economy is extremely weak and the impact of Putin’s move into Crimea “will be enormous,” he said.
But an official document suggested London opposed trade sanctions and shutting its financial capital to Russians. An official document a senior official carried it into a meeting in Cameron’s Downing Street residence on March 03 showed Britain may oppose sanctions that might undermine London as a haven for Russian capital.
European Union targeted sanctions have to be agreed unanimously among all 28 member states, however, and with several members, such as Cyprus and Italy, enjoying close business ties to Russia, securing that consensus is difficult. The EU said it would consider “targeted measures”.
Russia needs investment to keep its economy humming – it has suffered from about $60 billion in net capital outflows annually in the last two years.
The Russian central bank already has raised interest rates to defend the ruble, threatening to push the economy into recession, by some economists’ reckoning. US oil major ExxonMobil and aircraft maker Boeing are two companies with strong links to Russia and involved in joint ventures with Russian partners.
Any moves to slow investment into Russia could also hurt. Russia’s economy, which has softened significantly in recent months, is more vulnerable than it was during a previous 2008 crisis over Georgia.
Russian shares picked up on Tuesday as investors held out hope for an easing of the crisis in Ukraine after Moscow ordered troops on exercise in western Russia back to base.