Finance

U.S. Offers Russia Dialogue, Eyes Sanctions if Ukraine Is Invaded

WASHINGTON – As the Biden administration and US allies begin controversial talks with Moscow this week, Western officials are looking to impose significant financial and targeted technology sanctions if Russia sends troops across Ukraine’s border, while likely avoiding broader sanctions on energy and banking, according to sources on knowledgeable about the issue.

“We have two paths ahead of us,” Secretary of State Anthony Blinken said Sunday on CNN. There is a path of dialogue and diplomacy to try to resolve some of these differences and avoid confrontation. The other path is confrontation and the dire consequences for Russia if it renews its aggression against Ukraine.”

If Putin sends troops across the border, US officials have considered measures to limit Russian energy exports or kick the country out of the dollar-denominated international financial system, according to people familiar with the deliberations. Officials and analysts say the measures risk raising energy prices for US consumers already grappling with rising inflation, as well as hurting European economies that have deeper trade and financial ties with Russia.

“The disguised economic pressure on Russia is putting pressure on the West,” said Kevin Bock, an energy analyst at ClearView Energy Partners LLC, who likened the scenario to a cartoon character standing on a tree limb and cutting it off a stump.

So the US is also looking at more targeted measures, including setting up export barriers to block international sales to Russia of products with a certain percentage of US content, as well as preventing Moscow from accessing the latest microchips used in everything from aircraft to consumer electronics. , according to people familiar with the matter. Although US exports to Russia totaled just $4.9 billion in 2020, imposing the type of export controls used against Cuba and semiconductor restrictions used against China would lead to economic losses and harm efforts to modernize the economy, they said.

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Mr. Blinken and other senior US and European officials have not publicly detailed the range of potential sanctions, in part from a reluctance to turn a hand at Russia.

A US State Department spokesman said the high-level talks with Moscow began Sunday night when Blinken’s deputy Wendy Sherman, Russian Deputy Foreign Minister Sergei Ryabkov and military officials from both sides met in Geneva. Those officials will meet again on Monday to discuss broad strategic security issues.

On Wednesday, Russian officials will be sitting in Brussels for a rare meeting with officials from the North Atlantic Treaty Organization. A senior US State Department official said that senior officials of the Organization for Security and Cooperation in Europe, which includes Russia and a group of regional countries, will meet the next day in Vienna to start a broad conversation on European security.

The military build-up along the Ukrainian border is further straining relations between Russia and the United States, after clashes over cybercrime, the expulsion of diplomats and the migrant crisis in Belarus. The Wall Street Journal explains what is deepening the rift between Washington and Moscow. Composite/Video: Michelle Innes Simon

Moscow has massed more than 100,000 troops near its border with Ukraine, raising fears that Mr. Putin intends to invade lands he considers part of historic Russia or generate a crisis to extract security concessions from NATO.

For his part, Putin said he had the right to move troops into Russian territory and demanded that NATO rule out allowing Ukraine to join the bloc and sever military ties with Ukraine and other former Soviet states.

But NATO and the United States have long insisted as a matter of principle that any country wants to join the alliance, and that countries are free to associate with any other country they choose.

A breakthrough over Ukraine is unlikely, in part because the Biden administration has said it will not discuss the country’s future without Kiev on the table.

“If all goes right, almost nothing will happen in Geneva, because Moscow insists on major concessions in Europe that we cannot make,” said John Herbst, a former ambassador to Ukraine and Uzbekistan.

An image taken from a video released by the Russian Defense Ministry is said to show military exercises in the Ural Mountains, near Orenburg, Russia.


Photo:

News agency

President Biden has ruled out direct US military intervention in Ukraine, but said he would expand defensive military assistance to Ukraine if Russia attacked.

As talks approach, the United States has ruled out reducing U.S. troop levels in eastern and central European countries.

But the White House is ready to officially legalize that the United States has no intention of deploying missiles on Ukrainian soil that could strike inside Russia, if Moscow adheres to a mutual obligation.

The Biden administration is also open to exploring limitations or potential bans on deploying ground-based intermediate-range missiles in Europe.

The Trump administration has rejected Russian proposals to discuss halting the missile deployment, saying it could tie the United States’ hands without leading to the elimination of Russia’s 9M729 cruise missiles.

Russia’s development of these cruise missiles has prompted US accusations that Moscow is betraying the 1987 Intermediate-Range Nuclear Forces Treaty, and the Trump administration’s decision to withdraw from the agreement. Russia has denied the allegations.

The senior administration official said the United States is also ready to discuss mutual cutbacks in military exercises in Europe, including bomber flights. Russia has cited US and NATO military maneuvers across Europe as a “red line,” particularly in Ukraine, which Mr. Putin said poses a threat to his country’s doorstep. The United States says the Russian exercises are larger and more provocative.

im 464481?width=700&height=467

Russian Deputy Foreign Minister Sergei Ryabkov is leading the Russian side of talks with US officials in Geneva.


Photo:

Gavril Grigorov / Zuma Press

Regarding sanctions and non-military measures to punish Russia in the event of an invasion, senior State Department officials said that talks with partner countries are underway, but that the measures will be greater than previous sanctions.

After meeting with Mr. Blinken in Washington on Thursday, German Foreign Minister Annallina Birbock said the sanctions would include the financial sector. She declined to say whether Germany would cut off future gas imports from Russia via the new Nord Stream 2 pipeline, which Mr Blinken described as “leverage for Europe to use against Russia”.

Moscow supplies nearly half of the European Union’s imports of natural gas and a quarter of its external oil supplies, according to Eurostat, the union’s statistical body.

This leaves little room to offset the potential loss of Russia’s energy exports.

“The biggest deterrent that we can impose on the Russian government is to punish its oil and gas sector,” said Evelyn Farkas, an expert on Eastern Europe who served as deputy assistant secretary of defense during the Obama administration. “Even that is not a credible threat unless we work really hard — as we did in the context of Iran — to help allies and partners find alternative sources of fuel.”

im 464482?width=1260&height=840

German Foreign Minister Annalena Barbock and US Secretary of State Anthony Blinken addressed a joint press conference last week in Washington.


Photo:

Kay Nitfield / Zuma Press

DOE analysts told administration leaders that the effects of the sanctions on the market are likely to be limited, with oversupply weighing on prices early this year. But other administration officials are skeptical, arguing that oil and gas markets are tight and any US effort to damage Russian exports could cause a sustained price shock.

Some senior Biden administration officials have considered tough sanctions on Russia, including cutting Moscow from the SWIFT international banking system and barring Russian institutions from using US dollars. Such an extreme option, usually reserved for pariah states, would affect Wall Street’s debt markets and hurt European banks doing business in Russia, so Biden and European leaders are unlikely to go that far, current and former officials say.

“Swift will be tough even if they take Kiev,” said Mr. Herbst, the former ambassador.

write to William Mauldin at william.mauldin@wsj.com, Michael R. Gordon at michael.gordon@wsj.com and Timothy Puko at tim.puko@wsj.com

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