Obama Team Debates How to Punish Russia

WASHINGTON - As President Obama searches for a way to contain and ultimately reverse Russia's invasion of southern Ukraine without using force, his team finds itself torn over just how far to go using the economic weapons in America's arsenal.


Administration officials have concluded that they have the means through sanctions to badly damage the Russian economy, and some officials think they should use that power sooner rather than later if President Vladimir V. Putin refuses to surrender control of Crimea and proceeds to annex it.


But others in the administration, particularly economic officials, are wary of especially ruinous options that they argue could alienate allies as well as provoke a dangerous cycle of retaliation. The White House is under intense pressure from major American companies that do not want to lose business to competitors because of unilateral sanctions or to risk retribution from the Kremlin.


Mr. Obama, who will host Ukraine's new prime minister, Arseniy P. Yatsenyuk, at the White House on Wednesday in a show of solidarity, has so far held off imposing measures with any financial bite, in part to give diplomacy a chance. While he has canceled trade talks and military cooperation, his only move on sanctions has been to ban visas for fewer than a dozen Russian and Ukrainian figures deemed responsible for undermining Ukraine's sovereignty.



By all accounts, Mr. Obama has the power to go much further even without new legislation from Congress, which nonetheless is advancing competing bills to punish Russia. He signed an executive order last week authorizing not just additional visa bans but also asset freezes and other financial moves. But he did not actually invoke it against any targets, preserving what he called "the flexibility to adjust our response going forward based on Russia's actions."


Administration officials said the internal debate was not whether to penalize Russia for its actions - there is broad consensus for that, one that hardens with each passing day - but when, and how hard. Beyond freezing assets of individuals, the administration could sanction banks and potentially cut the country off from the dollar economy.


"There are people who are cautious about going too far too quickly, and there are those who want the president to show resolve," said a former administration official in touch with the White House.


According to current and former officials, those most supportive of strong action include officials closest to the situation in Ukraine: Victoria J. Nuland, the assistant secretary of state for the region, and Geoffrey R. Pyatt, the ambassador to the country. Those more wary about crippling the Russian economy include Jack Lew, the Treasury secretary; Michael Froman, the president's trade representative; and Caroline Atkinson, the president's international economics adviser.


The immediate question is whether to take action before Sunday's referendum in Crimea in hopes of forestalling it or instead to wait and see what Moscow does after it is over. The issue is further complicated by the fact that financial sanctions take time to prepare. While the United States has broad latitude to bar foreigners from traveling here, the government needs to build an evidentiary case that could withstand possible court challenge when it freezes assets.


The administration's handling of the issue has been improvisational. Its decision to impose the visa bans last Thursday came as a surprise to some European diplomats in Washington who interpreted it as an attempt to stiffen the resolve of their governments during a meeting that day in Brussels. European officials met again in London on Tuesday to talk about possible sanctions.


In Washington, European officials emphasized privately that there was no daylight between them and the United States; German officials argued that economics were not driving their approach because even though Germany relies on Russia for a third of its natural gas, its storage tanks are full.


In rallying support, Mr. Obama in recent days has made calls to beyond the usual big allies, speaking with the leaders of Spain and Kazakhstan. Vice President Joseph R. Biden Jr. called the leader of Cyprus, where a lot of Russian tycoons and companies keep their money.


Ukraine Crisis in Maps

American officials said there would be more unanimity if Russia escalated the crisis by following through with annexation or moving further into Ukraine. Officials are increasingly worried because the Crimean Peninsula, with no land connection to Russia, depends on Ukraine for water, electricity and other energy, which means Moscow might decide to seize more Ukrainian territory to supply the enclave.


"If they actually annex, if a Russian tricolor goes up, this is a whole new ballgame," said Strobe Talbott, president of the Brookings Institution and a former deputy secretary of state who has written several books on Russia. "Putin is the game changer, and he's got to be tagged out in some fashion. Cautious baby steps, they just won't work."


But American businesses are warning against overreaction. Representatives of groups like the U.S. Chamber of Commerce, the National Association of Manufacturers and the United States-Russia Business Council have been holding meetings at the White House or in Congress to share their views.


They are urging policy makers to be sure that any sanctions would actually have an impact on Russian behavior, that the costs not outweigh the benefits and that they be multilateral. "We are working closely with policy makers on both sides of the aisle to safeguard manufacturing employees and manufacturers' investments around the world," said Jay Timmons, president of the manufacturers association.


Although the United States does only $40 billion in trade with Russia each year, American businesses argue that the amount understates the real economic ties. Ford, for instance, has two assembly plants in Russia that make cars with material that comes from Europe, so that would not be reflected in import-export figures.


Boeing has sold or leased hundreds of planes in Russia and projects that the republics of the former Soviet Union will need an additional 1,170 planes worth nearly $140 billion over the next 20 years. Moreover, the company has a design center in Moscow, has just announced new manufacturing and training facilities in Russia and depends on Russia for 35 percent of its titanium.


"There's no doubt that key economic groups, especially energy, don't want us to act," said James B. Steinberg, a former deputy secretary of state under Mr. Obama and now dean of the Maxwell School of Citizenship and Public Affairs at Syracuse University.


Mr. Steinberg, who also served in President Bill Clinton's White House in the 1990s, recalled that as the administration pressured Iran over its nuclear program, it cut off a major American firm, Conoco, from business there despite the cost to the company. "For that very reason, it was critical to our credibility to act, even unilaterally if necessary, to the disadvantage of our companies," he said.


The challenge for the administration is trying to anticipate Mr. Putin's next move. John O. Brennan, the director of the Central Intelligence Agency, said Mr. Putin was laying the groundwork for possible action in eastern Ukraine by citing concerns for the safety of Russian speakers there.


"Has he made a decision?" Mr. Brennan said Tuesday to the Council on Foreign Relations. "Well, I guess only Putin knows if he has made that final decision. But what we've tried to do is identify what would be the reasons and how he might make those moves; what are the factors that he will take into account, and what are the costs that he is willing to incur if he decides to move across the border."


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