Putin Says There’s No Need Yet for Russia to Invade Ukraine

Russian President Vladimir Putin said he saw no immediate need to invade Ukraine while leaving open the possibility of using force, as the U.S. weighed sanctions on Russia and offered aid to the Ukrainian government. In his first public remarks since Ukraine said its Crimean peninsula was seized by Russian forces, Putin said yesterday he has a duty to defend ethnic Russians in the region and reserved the right to military action. U.S. PresidentBarack Obama challenged Putin’s rationale for intervening, as Secretary of State John Kerry unveiled $1 billion in loan guarantees to Ukraine’s cash-strapped government during a visit to Kiev. “Clearly Putin would like to lower some of the rhetoric,” Paul Denoon, who oversees $29 billion of emerging-market debt at New York-based AllianceBernstein Holding LP, said yesterday by phone. “But I don’t think he’s signaled a new direction in his intentions. We still think there’s a risk of escalation.” Stocks rebounded worldwide yesterday after Putin’s remarks stirred optimism that the worst crisis between Russia and the West since the end of the Cold War is cooling. The U.S. and Europe, which have decried Russian military activity in Crimea, are racing to seal aid to help the new government in Kiev avoid bankruptcy. Russia is also staking its own claim, saying Ukraine owes state-controlled energy giant OAO Gazprom (GAZP) $2 billion. Putin said extremists orchestrated a coup to dislodge President Viktor Yanukovych and that Russian speakers in Ukraine’s east and south need protection. Ukraine’s acting President Oleksandr Turchynov has said Russians aren’t at risk, while warning that a military invasion would be an act of war.

Conciliatory Tone

The Russian leader struck a more conciliatory tone yesterday. While saying Yanukovych remains Ukraine’s legitimate president, he ruled out any political future for the deposed leader and said Russia would engage the new administration. Putin said troops stationed in Crimea, where Russia keeps its Black Sea fleet, have only been securing their bases. Gunmen who’ve seized crucial infrastructure and surrounded military installations are acting independently, he said. “The use of the military is an extreme case,” Putin told reporters at his residence near Moscow. “But we have a direct request from a legitimate president, Yanukovych, on military aid to protect Ukrainian citizens.” Russia has 16,000 troops in the Crimea region, while it’s permitted to have as many as 25,000,Vitaly Churkin, Russia’s ambassador to the United Nations, said March 3. Its military also began exercises on Ukraine’s eastern border last week. The drills, which included fighter jets and tanks, ended yesterday.

Putin Call

Much of a 90-minute call on March 1 between Obama and Putin was eaten up by Putin making claims about the situation in Ukraine, including threats to ethnic Russians, while Obama pushed back, disagreeing on their veracity, according to a U.S. official who briefed reporters yesterday on condition of anonymity. The official described the leaders’ differences as significant. During that call, Obama also outlined a possible exit for Putin that would involve Russia pulling troops back to bases, agreeing to mediation with Ukraine and using Ukraine’s elections in May as a steppingstone to legitimacy. Putin acknowledged the informal proposal without endorsing it. The U.S. won’t entertain discussion of Russia annexing Crimea as part of negotiations to end the crisis, and any such move should be left up to the Ukrainian people, the official said. Obama and Putin are expected to talk again soon, though a call hasn’t been scheduled, the official said.

‘Fooling Anybody’

Obama told reporters in Washington yesterday that “President Putin seems to have a different set of lawyers making a different set of interpretations, but I don’t think that’s fooling anybody.” “Although Russia has legitimate interests in what happens in a neighboring state, that does not give it the right to use force as a means of exerting influence,” Obama said. So far, the official said, the U.S. doesn’t see any sign of escalation beyond Crimea. Even so, the U.S. continues to weigh sanctions on Russia and plans to calibrate its response to the crisis over the course of the next week, the officials said. Any major sanctions would be coordinated with Europe. U.S. officials traveling with Kerry said sanctions such as travel and asset bans on Russian individuals and institutions are likely within days if Russia doesn’t de-escalate actions in Ukraine and return forces to barracks. They spoke on condition they not be named because the penalties aren’t finalized. Russia’s position is unchanged by the threat of sanctions, Foreign Minister Sergei Lavrov said yesterday in Tunis.

Kerry Visit

Kerry was in Ukraine’s capital yesterday to underscore U.S. support for the new government led by Premier Arseniy Yatsenyuk. The top U.S. diplomat is holding meetings today in Paris with Lavrov, U.K. Foreign Minister William Hague and acting Ukrainian Foreign Minister Andrii Deshchytsia. An International Monetary Fund team was also due in Kiev yesterday to assess the country’s needs. Ukraine, a key transit nation for Russian energy supplies to Europe, needs $15 billion in the next 2 1/2 years to stay afloat, Finance Minister Oleksandr Shlapak said March 1. Putin said Russia was asked to cease a bailout sealed with Yanukovych in December and work instead with lenders including the IMF. “We were ready to consider the follow-up steps to provide the other tranches and additional bond purchases but our western partners are asking us not to do it,” Putin said. Russia may lend $2 billion to $3 billion to Ukraine to help repay debts to Gazprom, Premier Dmitry Medvedev said yesterday. The exporter decided against prolonging a discount on natural gas pricesafter April because of the debt.

Market Reaction

The U.S. official who briefed reporters didn’t say how much additional American aid might be offered to Ukraine, while saying that the Obama administration would welcome further support from Congress and that Treasury Secretary Jacob J. Lew may offer more detail in congressional testimony today. As military tensions abated, the MSCI All-Country World Index rose 1.2 percent, rebounding from its biggest drop in a month. Russia’s Micex Index climbed 5.3 percent after $55 billion was erased from the value of the country’s equities on March 3, and the S&P 500 jumped 1.5 percent, its largest gain this year, to an all-time high of 1,873.76 in New York. Yields on 10-year Treasuries were little changed today in Tokyo after rising 10 basis points, or 0.10 percentage point, to 2.70 percent yesterday in New York. That’s the largest gain on a closing basis since Nov. 8, according to Bloomberg Bond Trader prices. The yen declined against all 16 major peers yesterday and gold fell 1 percent. Ukraine’s hryvnia gained 7.1 percent to 9.1 per dollar, while the yield on the government’s dollar debt due 2023 fell 89 basis points to 9.65 percent, data compiled by Bloomberg show.

Ethnic Russians

Crimea, where ethnic Russians comprise the majority, has become the focal point of Ukraine’s political crisis after Yanukovych fled to Russia. Putin hasn’t heeded warnings from foreign governments to scale back his military’s presence in Ukraine, NATO Secretary General Anders Fogh Rasmussen said. “Despite repeated calls by the international community, Russia continues to violate Ukraine’s sovereignty and territorial integrity and continues to violate its international commitments,” he told reporters yesterday in Brussels. Crimea was given to Ukraine by Russia in 1954 by then-Soviet leader Nikita Khrushchev. People who identified themselves as ethnic Russian comprise 59 percent of Crimea’s population of about 2 million, with 24 percent Ukrainian and 12 percent Tatar, according to 2001 census data. Russians make up 17 percent of Ukraine’s entire population of 45 million.

Absorbing Crimea

Russia isn’t considering absorbing Crimea, Putin said. Forty-one percent of its residents want to join Russia, compared with 33 percent and 24 percent in the eastern Donetsk and Luhansk regions, according to a February poll by the Kiev International Institute of Sociology. That figure is 12 percent nationwide, down from a fifth in recent years, according to the survey of 2,032 people, which had a 2.2 percent margin of error. Leonid, a 21-year-old private from a Ukrainian infantry regiment near Feodosia, said he’s confused by the events in Crimea. While a standoff at his base with Russian soldiers has so far been amicable, he’s afraid the government in Kiev will send reinforcements to fight. “On one hand, it’s good that the Russians came; on the other, we gave an oath to Ukraine and I can’t work out in my head what to do now,” he said. “From my regiment, a dozen men will fight if a war starts. The rest won’t.” Source :  http://www.bloomberg.com/news/2014-03-05/putin-says-there-s-no-need-yet-for-russia-to-invade-ukrai.html