(Corrects proportion of Russian gas exports to Europe passing
through Ukraine, 30th paragraph)
By Warren Strobel, Arshad Mohammed and Anna Yukhananov
WASHINGTON, March 3 Washington is weighing an
array of economic weapons to penalise Russia for its armed
intervention in Ukraine, from asset freezes to expelling Moscow
from the G8 group of states, but may find Europe more reluctant
to resort quickly to sanctions.
British Prime Minister David Cameron, reflecting the U.S.
line, has warned Russia it will pay 'significant costs' unless
it changes course. But an official document unwittingly exposed
to a photographer's lense suggested London opposed trade
sanctions and shutting its financial capital to Russians.
U.S. President Barack Obama, acknowledging the fast
developing nature of the situation, needs Europe to join it to
make sanctions tough enough to potentially deter Russian
President Vladimir Putin. He is focusing first on measures that
would not require congressional action and is seriously
considering an executive order imposing asset freezes and visa
bans on Russian officials, a U.S. official said on Monday.
Such an order could be drawn narrowly to focus on Russian
officials directly involved in the intervention in Ukraine's
Crimea or more broadly to target a wider range of Russian
officials, two officials said.
Any moves to slow investment into Russia could also hurt.
Russia's economy, which has softened significantly in recent
months, is more vulnerable than it was during a previous 2008
crisis over Georgia.
"The Russian economy is extremely weak," said Anders Aslund,
a senior fellow at the Peterson Institute for International
Economics. The impact of Putin's move into Crimea "will be
enormous," he said.
European Union targeted sanctions have to be agreed
unanimously among all 28 member states, however, and with
several members, such as Cyprus and Italy, enjoying close
business ties to Russia, securing that consensus is difficult.
The EU said it would consider "targeted measures".
Britain, for one, is seen as reluctant to support measures
that might affect the vast number of Russians who have chosen
London as their home and base for their business empires.
An official document which was photographed as a senior
official carried it into a meeting in Cameron's Downing Street
residence on Monday showed Britain may oppose sanctions that
might undermine London as a haven for Russian capital.
"The UK should not support for now trade sanctions or close
London's financial centre to Russians," the BBC quoted the
document as saying. When asked about the report, a spokeswoman
for Cameron said she would not comment on leaked documents.
Russian shares picked up on Tuesday as investors held out
hope for an easing of the crisis in Ukraine after Moscow ordered
troops on exercise in western Russia back to base.
Here are details of some of the measures the United States
and the European Union could take:
- Target Russia's membership in the G-8 group of major
industrialized countries, a prestigious "club" that brings
Russia together with the United States, the United Kingdom,
Canada, France, Germany, Italy and Japan.
Leaders of the G-7, which does not include Russia, said on
Sunday they were suspending participation in talks to prepare
for a G-8 summit in Sochi, Russia, this summer.
Canadian Prime Minister Stephen Harper said Russia might be
ejected from the group if Putin does not change course.
"President Putin's actions have put his country on a course of
diplomatic and economic isolation that could well see Russia
exit the G8 entirely," he said.
The G-7 also could meet by itself, excluding Russia without
formally ending the broader group.
- Target Russian banks. Under broad new authorities gained
since the Sept. 11, 2001 attacks, the U.S. Treasury has employed
financial warfare against banks worldwide, when it finds
complicity in terrorist financing, money laundering or weapons
Former senior Treasury official Juan Zarate said moves
against Russian banks suspected of illicit financing would take
time, but would eventually have an impact, and would have the
added benefit of exposing Russia's financial backing for Syrian
President Bashar al-Assad.
Cutting Russian banks off from the U.S. financial system
could hurt them significantly. But Zarate said Washington would
need solid evidence of illicit financial conduct.
- Hunt for Putin funds. In a related move, the United States
could hunt for assets controlled by Putin and his close allies,
something it has never openly done, said Zarate, now at the
Washington-based Center for Strategic and International Studies.
Such actions "are not going to change the course of events
tomorrow. But it could demonstrate to Putin and those close to
him that the West can bite back," he said.
- Cut back on U.S.-Russian bilateral trade. Trade in goods
between the two countries was worth $38.12 billion in 2013 and
U.S. firms have $14 billion in direct investment in Russia.
Russia and the United States had started talking about a
bilateral investment treaty, but a planned visit by U.S. trade
officials to discuss that treaty has now been scrapped.
"We have suspended upcoming bilateral trade and investment
engagement with the government of Russia that were part of a
move toward deeper commercial and trade ties," a spokesman for
the Office of the U.S. Trade Representative said on Monday.
Russia needs investment to keep its economy humming - it has
suffered from about $60 billion in net capital outflows annually
in the last two years.
The Russian central bank already has raised interest rates
to defend the ruble, threatening to push the economy into
recession, by some economists' reckoning.
U.S. oil major ExxonMobil and aircraft maker Boeing
are two companies with strong links to Russia and
involved in joint ventures with Russian partners.
- Blunt European dependence on Russian energy.
Several EU member states, particularly in the Baltics, rely
almost entirely on Russian oil and gas supplies, while even
major countries such as Germany, France and Italy import 25 to
35 percent of their gas from Russia. Overall, around 35 percent
of all the gas imported to the EU from Russia transits via
A European Commission spokeswoman said the EU, after a warm
winter, had enough gas in storage to meet almost 10 percent of
Europe could increase storage capacity to buffer it further.
Longer term, there are also calls for Europe to diversify by
developing capacity for liquefied natural gas, which can be
shipped. Some U.S. energy industry supporters are eager to help.
LNG supplies from the United States or the Middle East could
help some Western European countries react to any Russian
aggression in coming years, although added transportation costs
could be too expensive for others in Central Europe who are
likely to remain dependent on neighbors, energy experts said.
"The U.S. energy transformation of recent years gives us
options we didn't have several years ago. So we ought to explore
using those options," said Richard Haass, the president of the
Council on Foreign Relations think tank.
- Expanded target sanctions. Under a 2012 U.S. law named
after Russian lawyer Sergei Magnitsky, who died in prison, the
United States targeted Russian officials involved in human
rights abuses with visa bans and asset freezes.
The State Department placed 18 Russian individuals on a
public list of those affected, and a handful of other senior
officials are on a list that was not made public. Moscow
responded by banning some Americans from traveling to Russia and
halting U.S. adoptions of Russian children.
An executive order from Obama could create another, similar
list, even though its effect might be limited.
"Political figures targeted by sanctions normally have few,
if any, assets in U.S. banks or under the control of U.S.
entities or persons," said Clifton Burns, who works on sanctions
issues at the law firm Bryan Cave LLP.
(Additional reporting by Krista Hughes, Patricia Zengerle, and
Timothy Gardner in Washington, Brian Grow in Atlanta and Luke
Baker in Brussels. Editing by Ralph Boulton)