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Putin Says No Immediate Need to Invade Eastern Ukraine, Leaves Threat Dangling

By Ilya Arkhipov, Indira A.R. Lakshmanan and Stepan Kravchenko
March 04, 2014 2:42 PM EST 2166 Comments
French President Raymond Poincaré with Tsar Nicholas II of Russia during a state visit to Russia, in July 1914.
Photographer: Topical Press Agency/Getty Images
French President Raymond Poincaré with Tsar Nicholas II of Russia during a state visit to Russia, in July 1914.

Vladimir Putin said he sees no immediate need to invade eastern Ukraine as the Obama administration prepares $1 billion in loan guarantees for the cash-strapped nation and threatens sanctions against Russia.

In his first public remarks since Ukraine said its Crimean peninsula had been taken over by Russian forces, President Putin said he reserved the right to use force to defend ethnic Russians while there’s “no such necessity” at present. U.S. Secretary of State John Kerry arrived in Kiev to offer an aid package to Ukraine’s interim government, as President Barack Obama challenged Putin’s rationale for intervening.

“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 today 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.”

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Stocks in Moscow rebounded after Putin’s remarks on 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 $2 billion.

Markets Bounce

After plunging 11 percent yesterday, Russia’s Micex stock index reversed some of those losses and rose 5.3 percent today. The ruble strengthened 1.2 percent against the dollar-euro based used by the central bank, which unexpectedly raised its benchmark rate by 150 basis points to 7 percent yesterday.

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.

Putin claims extremists orchestrated a coup to dislodge President Viktor Yanukovych and says Russian speakers in Ukraine’s east and south need protection. Ukraine’s acting President Oleksandr Turchynov has warned that a military invasion would be an act of war, saying Russians aren’t at risk.

A Snapshot of Ukraine's Past and Future

The Russian leader struck a more conciliatory tone today. 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.

‘Extreme Case’

“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.”

Obama told reporters in Washington today 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.”

“I think everybody recognizes that, 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 inside of that state,” Obama said.

Russia today test-fired a Topol intercontinental ballistic missile from its southern region of Astrakhan to a target in Kazakhstan, the Interfax news service reported. The country plans such tests “well in advance,” Kremlin spokesman Dmitry Peskov said by phone. Russia conducts hundreds of tests of different weapons annually at the same site, according to the Defense Ministry’s website.

Troops in Crimea

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 yesterday. Its military also began exercises on Ukraine’s eastern border last week. The drills, which included fighter jets and tanks, ended today.

As military tensions over Crimea abated following accusations yesterday by Ukraine that Russia was threatening its war ships, the focus shifted back to Ukraine’s solvency. The country, 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.

Kerry is visiting Kiev to underscore U.S. support for the new Ukrainian government led by Premier Arseniy Yatsenyuk.

Travel Bans

U.S. officials traveling with him 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 Western sanctions, Foreign Minister Sergei Lavrov said today in Tunis.

An International Monetary Fund delegation was also due in Ukraine’s capital today after Russia halted an aid package of that size sealed with Yanukovych in December. Putin said Russia was asked to cease its bailout and work with foreign lenders.

“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,” he said. “They’re asking us to work together with the IMF to encourage the Ukrainian government to carry our reforms to improve the economy.”

Russia may lend $2 billion to $3 billion to Ukraine to help repay debts to Gazprom, Premier Dmitry Medvedev said today. The natural-gas exporter decided against prolonging a discount on natural gas prices after April because of the debt.

Russian Majority

Crimea, where ethnic Russians comprise the majority, has become the focal point of Ukraine’s political crisis after Yanukovych fled to Moscow. Russia hasn’t heeded warnings from foreign governments to scale back its presence in Ukraine, according to NATO Secretary General Anders Fogh Rasmussen.

“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 today 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.

Crimea Poll

Russia isn’t considering absorbing Crimea, Putin said today. Forty-one percent of its residents want to join Russia, compared with 33 percent and 24 percent in the eastern Donetsk and Luhansk regions, a February poll by the Kiev International Institute of Sociology showed. 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.”

To contact the reporters on this story: Ilya Arkhipov in Moscow at iarkhipov@bloomberg.net; Indira A.R. Lakshmanan in Washington at ilakshmanan@bloomberg.net; Stepan Kravchenko in Simferopol at skravchenko@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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