Obama Warns Putin of Cost to Russia for Annexing Ukraine

 U.S. President Barack Obama and the head of Ukraine’s acting government are making an 11th-hour bid to head off a referendum on Crimea joining Russia with a show of solidarity and warnings of economic consequences.

The U.S. pressed Russia to cancel or postpone the March 16 ballot or at least agree not to implement any annexation vote as Obama met at the White House yesterday with Ukrainian interim Prime Minister Arseniy Yatsenyuk.

Obama warned that unless Russian President Vladimir Putin pulls back, the U.S. and its allies “will be forced to apply a cost to Russia’s violations of international law and its encroachments on Ukraine.”

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He also signaled the U.S. may not oppose negotiations with the government in Kiev on “different arrangements” for the autonomous region of Crimea in the future. U.S. Secretary of State John Kerry will meet in London today with his Russian counterpart, Sergei Lavrov, to seek a way forward.

Yatsenyuk said Ukraine will “never surrender” to Russia. In remarks to reporters, he called on Putin to “tear down this wall,” a pointed reference to Ronald Reagan’s message to Mikhail Gorbachev delivered in a 1987 speech just before the collapse of the Soviet Union.

With the approach of the referendum in Crimea on reuniting with Russia, Obama and U.S. allies in Europe are ratcheting up the threat of sanctions if Putin doesn’t take steps to defuse the situation.

‘Grave Implications’

The standoff has boiled over into the biggest confrontation between Russia and the West since the end of the Cold War. The U.S. and other members of the Group of Seven countries said in a statement yesterday that Russian annexation of Crimea “could have grave implications.”

Yatsenyuk told reporters after his meeting with Obama that Putin’s refusal to pull back the troops who seized the Crimean peninsula after an uprising in Kiev toppled the Moscow-backed president, Viktor Yanukovych, would be a signal that the Russian leader wants to “revise the outcome of the second world war” and destabilize the existing order in Europe.

This is “not a crisis just between Ukraine and Russia,” Yatsenyuk said in an address later to the Atlantic Council in Washington, “this is a global crisis.”

While the U.S. has moved some military assets into the region, the main pressure point on Russia is economic.

European Sanctions

European Union foreign ministers are prepared to draft a series of punitive measures including asset freezes and visa curbs at the beginning of next week, German Chancellor Angela Merkel said in Warsaw. The U.S. has already imposed a visa ban on some individuals, whom it hasn’t identified, and Obama has authorized the imposition of financial sanctions.

Sanctions could “get ugly fast if the wrong choices are made,” Kerry said at a congressional hearing in Washington yesterday. “And it can get ugly in multiple directions.”

Along with the threat of financial sanctions by the U.S. and Europe, investors have registered their concern.

Russia’s Micex Index (INDEXCF) lost 2.6 percent to 1,274.21 by the close in Moscow yesterday, the lowest since May 2012. The ruble weakened for a fourth day against the central bank’s dollar-euro basket. Government bonds due February 2027 slid for a fourth day, with the yield at the highest since the securities were issued in February 2012.

The U.S. and its allies also are seeking to bolster Ukraine. Yatsenyuk’s cash-strapped nation needs as much as $15 billion in loans. The Ukrainian government is trying to secure cash to repay billions in foreign debt after investors withdrew funds and central bank reserves plummeted.

Aid Packages

The European Union has outlined an 11 billion-euro ($15 billion) package of loans and grants for the coming years tied to the country agreeing on a program of economic reforms from the International Monetary Fund.

The U.S. is offering $1 billion in loan guarantees, though final passage has been tied up in Congress in a dispute with House Republicans over increasing the U.S. quota for the IMF.

The Senate Foreign Relations Committee yesterday approved an aid package that includes the loan guarantee as well as the IMF funding, which is backed by the Obama administration, chief executive officers of major U.S. companies and Republican former secretaries of state Henry Kissinger and Condoleezza Rice.

While the House previously approved the loan guarantee, Speaker John Boehner, an Ohio Republican, yesterday rejected tying additional funds for the IMF to Ukraine aid.

Capitol Visit

Yatsenyuk went to the Capitol last night and met with members of the Senate Foreign Relations Committee after his visits with Obama and Kerry. He called the U.S. pledge of loan guarantees “the first real and concrete step how to stabilize the situation in my country, and we praise it.”

Speaking to reporters after the closed-door meeting, Yatsenyuk said he wasn’t concerned about the time that may be required for Congress to approve the requested assistance.

“It always takes time to make good things,” he said.

Senator Robert Menendez, a New Jersey Democrat and committee chairman, said the aid package could be passed as soon as Congress returns from a week-long recess.

Yatsenyuk, who’s scheduled to speak to the United Nations Security Council today in New York, said his country must “modernize and overhaul” its military, while it seeks to resolve the conflict with Russia “in a peaceful manner.”

“This is a global problem,” he said. “If Russia goes further, this would totally and entirely undermine the global security.”

Crimean Premier

Putin so far has refused to back down. His government contends ethnic Russians in Crimea are at risk after the ouster of Yanukovych, an assertion Ukraine’s new leaders deny. Putin supports Crimea’s recently appointed administration, which has organized the March 16 referendum.

The Black Sea region’s premier, Sergei Aksenov, said Crimea can be integrated into Russian within two months if voters approve.

Ukraine’s First Deputy Premier Vitaliy Yarema told the government in Kiev, that Russian forces, which already have blockaded or taken over bases in Crimea, are amassing along Ukraine’s eastern frontier.

Russia has stepped up its military maneuvers on the border with Ukraine, the Russian Defense Ministry said today, according to the Interfax news service. The main goal of the exercises involving tanks and artillery is to train for military operations in unknown territory, Interfax said.

Canceled Flights

Russian forces control the roads leading to the peninsula, have taken charge of a ferry crossing at Kerch and blocked harbors, according to Ukrainian border guards. Kiev’s Boryspil airport said on its website that Simferopol, the southern region’s capital, has canceled flights linking the two cities until the day after the referendum.

The U.S. Defense Department said yesterday it would send 12 F-16 aircraft to Poland by the end of the week to demonstrate its commitment to defend its allies in the region. Other fighter jets have been dispatched to Lithuania.

Obama and Yatsenyuk both said Ukraine doesn’t need to choose between Russia and the West.

“Our Russian partners have to realize that we are ready to make a new type or to craft a new type of our relationship where Ukraine is a part of the European Union, but Ukraine is a good friend and partner of Russia,” Yatsenyuk said.

Obama argued that a Ukraine with close economic ties with Europe would make Russia stronger rather than weaker.

“But obviously Mr. Putin has some different ideas at this point,” he said.