U.S. News

03.03.14

Inside Obama’s Plans to Squeeze Russia

The Obama administration is working around the clock to come up with ways to punish Vladimir Putin for invading Ukraine. But will any of them work?

UPDATE: The Associated Press reported Monday that Russia is already suffering some economic consequences of its aggression in Ukraine. The Russian stock market is down 12 percent, the ruble is falling, and the Russian central bank has hiked interest rates in an attempt to shore up the value of its currency.

Behind the scenes, Obama administration officials are preparing a series of possible battle plans for a potential economic assault on Russia in response to its invasion of Ukraine, an administration source close to the issue told The Daily Beast. Among the possible targets for these financial attacks: everyone from high-ranking Russian military officials to government leaders to top businessmen to Russian-speaking separatists in Ukraine. It’s all part of the work to prepare an executive order now under consideration at the Obama administration’s highest levels.

The Obama administration came under sharp criticism over the weekend for not responding quickly or strongly enough to the takeover of the Ukrainian province of Crimea. Meanwhile, a team of State Department, White House, and Treasury Department officials worked to provide the president a menu of sanctions and other economic pressure levers that Obama might add to that executive order..

Secretary of State John Kerry, who will travel to Kiev Tuesday, promised harsh consequences for the Russian government if it continued its aggression in Ukraine—and hinted at the economic retalation to come.

“There could even be, ultimately, asset freezes, visa bans. There could be certainly disruption of any of the normal trade routine. There could be business drawback on investment in the country. The ruble is already going down and feeling the impact of this,” Kerry said Sunday on Meet the Press.  “And the reason for this is because you just don’t invade another country on phony pretext in order to assert your interests.”

“In the long term, this will have a cost on the Russian economy. Some of those costs will be imposed by the United States, some of those Russian has already invited upon itself, and some of them will be international.”

Several administration officials said Sunday that the process of sanctioning Russian would take time to implement and could take even more time to garner a reaction from Russian president Vladimir Putin. The U.S. also wants to work with European Union countries to make sure the sanctions are coordinated for maximum effectiveness, while also preparing a multi-billion dollar economic aid package for the new leaders in Kiev.

The drive to find ways to tighten the economic noose around Putin’s neck is at the center of the administration’s strategy to not only punish Russian leaders but also to change their calculus about pushing forward with their occupation of Ukraine.

“We’re beginning to review all of our trade and economic cooperation with the Russian Federation,” a senior administration official told reporters on Sunday. “What we see here are distinctly 19th and 20th century decisions made by President Putin to address problems… but what he needs to understand that when it comes to the economy, he lives in a 21st century world, an interdependent world.”

The administration is already doing what it can do now to show Putin that the U.S. government is serious about its outrage over Russia’s actions in Ukraine. In addition to Kerry’s Sunday announcement that the U.S. has suspended preparations for the June G8 meeting in Sochi and might seek to expel Russia from the G8 altogether, officials said the U.S. has cancelled several planned bilateral events and is expected to cancel several more.

A trip by the U.S. Trade Representative’s office to Moscow has been scuttled. A Russian delegation to Washington for talks on energy cooperation has been disinvited. Planned Naval cooperation talks are now indefinitely postponed. Effectively, the U.S. has decided to put the brakes on all aspects of bilateral relations until the crisis in Crimea is further resolved.

Administration sources cautioned that no decision has been made by President Obama regarding the path ahead for sanctions. But that the targets under consideration include not only the Russian government and military, but also organizations and individuals who can be shown to have helped or are helping foment unrest in Ukraine, both inside and outside Crimea.

Even Russian business leaders could be targets for asset freezes and visa bans. Administration officials added that Russian companies were fair game for sanctions if they can be shown to have been involved in either the invasion of Ukraine, or the effort to destabilizing the interim government that replaced ousted President Viktor Yanukovich, who fled to Russia last week.

The administration is also considering whether or not to go after the Crimean separatists themselves, or just the Russians who are aiding the separatists. The sanctions could focus mainly on the situation in Crimea or it could cast a wider net, covering those responsible for unrest in other parts of Ukraine. The administration also predicts damage to Russia’s economic reputation, the investment climate in Russia, and further sliding of the ruble.

“We’ll be taking a look at all these different elements, because in the long term this will have a cost on the Russian economy. The president was very clear in his word choice of ‘costs,’” a second senior administration official told reporters. “Some of those costs will be imposed by the United States, some of those Russian has already invited upon itself, and some of them will be international. So there are many vulnerabilities that will only grow if Russia does not take the right choice.”

Part of the delay in devising the list of sanctions and making a decision is due to the fact that the Obama administration was caught by surprise last Friday when Russian paramilitary forces entered Crimea and began taking control of airports and other key infrastructure. The administration had prepared sanctions against Yanokovich and his allies, but those plans were quickly taken over by events on the ground when Yanukovich was deposed. Further changes on the ground could change the sanctions plan again.

The other reason the sanctions are taking some time is because the administration is required to build an evidentiary basis for each sanction it wishes to impose. For an executive order, for example, the president must make a finding that the crisis constitutes a grave threat to American national security. Administration sources said that shouldn’t be a problem and past findings have been made following lesser provocations.

“The expectation that this is going to change in 24 hours, that’s not real world,” a third senior administration official said. “This is a serious situation that the Russians have created, it’s going to take serious efforts to unwind it, and we are absolutely seriously engaged in the effort to do that.”

Congress is also set to propose sanctions legislation this week. Sen. John McCain has proposed expanding the Sergei Magnitsky Rule of Law and Accountability Act to punish senior Russian officials involved in the Ukraine invasion. The law is meant to hold Russian human rights violators accountable.

“We must consider legislation to respond to this… The Magnitsky bill can be expanded for holding people responsible for these acts of aggression,” he told The Daily Beast in an interview Saturday.

The view inside the Obama administration is that the White House can do a lot of the sanctions work on its own, without legislation from Congress, but that new Congressional legislation could be helpful, so long as it doesn’t contain a lot of items the administration is opposed to. For example, McCain also wants Obama to restore plans to build missile defense sites in Eastern Europe, which is not actually under consideration.

One administration source noted that even during the Bush administration’s response to the Russian invasion of Georgia in 2008, such an expansive list of punitive measures weren’t considered. “We’re considering going farther in Ukraine than we ever did in Georgia,” the administration source said.