Crimea Base Incident Shows Danger of Ukraine Escalation

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gold-silver-reportsRussian President Vladimir Putin is showing no signs of heeding western calls to ease the standoff in Crimea, where there were reports that armed attackers forced their way into a Ukrainian military base before withdrawing.

As Putin presided over the opening ceremonies of the 2014 Paralympic Games in Sochi, leaders of Russia’s parliament pledged to accept the results of a March 16 referendum on joining Russia called by Crimea’s pro-Russia leaders. The vote, which Ukraine’s new leaders and Western powers consider illegal and unconstitutional, heightens tensions in the worst dispute between Russia and the west since the Cold War.

Russia also turned up the economic pressure on the Kiev government by signaling that natural gas supplies may be cut because Ukraine’s unpaid gas bills have reached almost $2 billion. The U.S. and European Union have promised emergency aid, coordinated with the IMF, though it’s taking time to work out measures to avert a potential Ukrainian default.

Western officials say they’re concerned that the situation in the Crimean peninsula, where the U.S. estimates there now are 20,000 Russian troops confronting a smaller Ukrainian military force, could explode at any moment.

“Russia and Ukraine, right now, are one nervous 20-year-old soldier’s mistake away from something very, very bad happening that could spin out of control,” said Steven Pifer, a former U.S. ambassador to Ukraine. There are about 12,000 Ukrainian troops in Crimea, he said.

Armed Attack

The Ukrainian Defense Ministry yesterday reported that armed men had attacked and entered a Ukrainian base in Sevastopol, the port city that’s home to the Russian Black Sea fleet. The men withdrew after negotiations, according to Ukraine’s TV5 news channel.

Pifer, who spoke on a panel before details were known, said Russian forces have repeatedly tried to provoke the Ukrainian military and said it was “very commendable” that the Ukrainians have not challenged the Russians, who have surrounded their bases.

“There needs to be some kind of de-escalation,” said Pifer, a senior fellow at the Brookings Institution, a Washington public policy research group. “Having guys with guns standing across a fence from each other is not a good idea.”

Military Restraint

U.S. President Barack Obama’s administration has urged the Ukrainian government to keep its military and police under tight control and avoid giving the Russians a pretext to escalate with military force, said two U.S. officials who requested anonymity to discuss intelligence reports and diplomatic contacts.

Chinese Foreign Minister Wang Yi said today at a briefing that the priority was to exercise restraint in Ukraine. The situation should be handled in a prudent way, he said.

Ukraine’s international bonds due in June fell 0.2 percent to 92.89 cents on the dollar last night in Kiev, increasing the yield by 1.2 percentage points to 41.207 percent. The hryvnia weakened 0.4 percent to 9.23 per dollar, data compiled by Bloomberg showed. The central bank in Kiev bought dollars on the foreign-exchange market, the Interfax-Ukraine news service reported, citing traders.

Obama and his European counterparts have called on Putin to de-escalate, while the Russian president asserts that he’s defending Ukraine’s ethnic Russians, who make up about 59 percent of Crimea’s population. The State Department issued a paper this week saying that Putin’s justification — that ethnic Russians are under threat — ranks among his “10 false claims about Ukraine.”

Diplomatic Efforts

U.S. Secretary of State John Kerry said in Rome March 6 that he presented Russian Foreign Minister Sergei Lavrov with ideas to take to Putin, and a State Department official said Kerry then debriefed Ukrainian Prime Minister Arseniy Yatsenyuk on his talks with Lavrov. Russia’s Interfax news agency reported yesterday that Kerry and Lavrov, who met this week at other events in Paris and Rome, will continue their discussions soon.

Kerry has described in general terms the proposal he gave Lavrov: Russia must pull its troops in Crimea back to their barracks; respect Ukraine’s territorial borders; and allow international observers unfettered access to evaluate any concerns about security, governance and human rights. Western governments also have urged disarming the pro-Russian militias in Crimea and sealing a deal for the International Monetary Fund to extend assistance to the acting Ukrainian government.

Sanctions Talk

The U.S. and European allies will move together to impose sanctions if there isn’t a quick resolution Obama said at the White House on March 6. He telephoned German Chancellor Angela Merkel yesterday to discuss Ukraine, the White House said.

In a phone conversation, Lavrov warned Kerry against “hasty and ill-considered moves that can damage Russian-American relations, especially sanctions, which would inevitably boomerang on the United States,” the Russian Foreign Ministry said in a statement cited by Interfax.

If Russia doesn’t back down, it risks “serious consequences from Europe,” French Foreign Minister Laurent Fabius said yesterday on France Info radio.

Any sanctions the EU imposes would be done progressively as the 28-nation economic bloc seeks a diplomatic solution with Russia, EU Trade Commissioner Karel De Gucht said during a visit to the U.S.

“The longer it takes, the broader the sanctions will be,” De Gucht said in a telephone interview, without providing details of possible actions.

Aid Package

The EU plans to provide a package of aid for Ukraine worth 11 billion euros ($15.3 billion), and it’s prepared to drop tariffs on about 85 percent of the EU’s imports of Ukrainian goods, he said. De Gucht said he will introduce a regulation on March 11 to reduce the tariffs, which would have to be approved by the European Council and the European Parliament.

De Gucht said he wasn’t concerned about threats by OAO Gazprom, Russia’s state-backed gas company, to cut off fuel supplies to Ukraine, a conduit for European gas. The EU has about six weeks of strategic reserves, he said.

Ukraine hasn’t made its February fuel payment and owes Russia $1.89 billion, according to gas export monopoly Gazprom, which halted supplies to Ukraine five years ago amid a pricing and debt dispute, curbing flows to other European nations.

Gas Risk

A gas cutoff is “an absolutely real danger because whatever Gazprom’s commercial motives — and they want to sell their gas and do their business — the problem is that the political relationships obviously are worse than they have ever been and the debt is very big,” Simon Pirani, senior research fellow at Oxford Institute for Energy Studies, said by phone.

As Gazprom released its statement, Ukrainian Prime Minster Yatsenyuk was meeting in Kiev with an International Monetary Fund mission over a bailout. The Washington-based lender is prepared to support Ukraine’s program for economic change and is impressed by the government’s commitment, European department director Reza Moghadam said in a statement.

The Republican-led U.S. House of Representatives passed a bill on March 6 to allow $1 billion in loan guarantees for Ukraine sought by Obama’s administration. Senate Foreign Relations Committee Chairman Bob Menendez, a New Jersey Democrat, is working with committee Republicans on a package of aid for Ukraine and sanctions against Russia. The panel is scheduled to vote on the legislation, which hasn’t yet been made public, on March 11.

Invalid Referendum

Yatsenyuk told reporters in Kiev yesterday that the international community won’t recognize the Crimea referendum.

“I want to be very clear: Crimea was, is and will be an integral part of Ukraine,” he said. “No concessions. Full stop.”

Russia’s parliament will discuss a bill that would pave the way for the switch this month. Both houses said yesterday they’d back the move.

Lawmakers in Crimea voted March 6 on a non-binding measure to become part of Russia if voters agree in the referendum scheduled for March 16. That move would reverse the 1954 transfer of Crimea to the Ukrainian Soviet Socialist Republic by Soviet leader Nikita Khrushchev.