Nord Stream 2 falls victim to Putin support for separatists
The western response to Russia’s latest escalation over Ukraine became clearer as Germany halted the certification process for the Nord Stream 2 pipeline following President Vladimir Putin’s decision to send troops to two self-proclaimed separatist republics.
German Chancellor Olaf Scholz, who held a call with Putin late on Monday, said that the Russian leader’s recognition of the breakaway republics in eastern Ukraine had materially changed the situation so that “no certification of the pipeline can happen right now.” Without it, he told reporters in Berlin, the gas pipeline from Russia to Germany “cannot go into operation.”
Nord Stream 2 is a priority project for Putin that he has personally pushed from its inception.
The decision to put it into limbo demonstrates Germany’s determination to shoulder the economic cost of holding Putin to account for his actions, which effectively tear up years of diplomatic efforts spearheaded by Berlin to bring peace to eastern Ukraine. It was the first hint of a round of US and European sanctions due to be announced as soon as Tuesday.
“I expect a very strong and focused package,” Scholz said.
Oil, nickel and aluminium surged as traders weighed the risk of supply disruptions from potential Western sanctions. European gas jumped as much as 13% and Brent crude oil headed toward $100 (€88) a barrel. Russian shares tumbled on the signs of further tensions.
Russia gave no details on how many “peacekeeping” troops might go into the breakaway regions of Donetsk and Luhansk. The US and its allies continue to warn Moscow could soon start a full-scale invasion, something that Russia denies. Treaties Putin signed with separatist leaders on Monday allow Russia to deploy forces and build military bases on their territory.
Raising the stakes
The Kremlin move raised the stakes with the West but so far falls short of the massive invasion of large areas of Ukrainian territory that US and other officials have said is possible.
At the same time, more than 150,000 Russian troops remain massed near Ukraine’s borders, according to Western estimates. A senior US official said Russia is continuing to prepare for military action that could occur in the coming hours or days. A key unknown is whether Russian “peacekeepers” would stop at the line of contact between separatists and the Ukrainian military.
Putin’s spokesman, Dmitry Peskov, maintained ambiguity, saying that Russia recognises the separatists’ “declared” borders. The breakaway areas control only 30% of the territory that used to be part of the Luhansk and Donetsk Oblasts in Ukraine. The Kremlin wants to continue talks with Western countries, Peskov told reporters on a conference call on Tuesday.
“Russia won’t calm down,” said Alexei Chesnakov, a former senior Kremlin official and adviser on Ukrainian policy. “It wants iron-clad guarantees that Ukraine won’t join NATO and as long as it doesn’t get these guarantees, the possibility of escalation will remain permanently on the table.”
President Joe Biden issued an executive order prohibiting US investment, trade, and financing to separatist regions of Ukraine, and Ambassador Linda Thomas-Greenfield said additional American sanctions against Russia would be coming on Tuesday. The UK is set to impose sanctions on Russia, while the European Union has begun the process of agreeing penalties for Putin’s actions.
For the moment, western officials indicated that Russia’s recognition wasn’t a dramatic enough step to prompt the severe economic sanctions threatened in case of a full-scale invasion. A senior administration official told reporters the sanctions currently planned are separate from the more severe economic measures the Biden administration has said it would impose should Putin move forward with an invasion.
“It’s not yet the invasion our partners have been talking about,” Lithuanian Foreign Minister Gabrielius Landsbergis told reporters in Paris. “But it’s a very steep escalation of the situation.” He said the EU’s actions could include sanctioning individuals responsible for Monday’s move, as well as a ban on European companies from operating in the occupied regions.
Russia’s latest move generated condemnation from the US, EU and nearly all representatives of the United Nations Security Council who spoke on Monday night. China’s ambassador to the UN, Zhang Jun, called on all sides to exercise restraint.
The US said the White House was still open to a meeting between Biden and Putin - predicated on Russia not proceeding with an attack. Secretary of State Antony Blinken is scheduled to meet with Foreign Minister Sergei Lavrov in Geneva on Thursday to discuss the crisis.
Sanctioning individuals involved in the recognition of the two Ukrainian regions is a more limited move that could happen relatively quickly. Reaching agreement on broader sanctions and what would trigger those - against sectors like defence and finance - is expected to take longer and could require a meeting of leaders.
Russia doesn’t currently plan any military deployment beyond the existing borders of Ukrainian breakaway areas it’s recognised, said a political expert close to the Kremlin.
“The crisis can still be resolved,” said Alexei Mukhin, head of the Moscow-based Center for Political Information, which provides consultancy services for the presidential administration. Russia’s demands for a halt to NATO expansion and a pullback of the alliance from eastern and central Europe are just a starting-point for negotiations on security guarantees in the region, he said.
Russian legislators on Tuesday voted to ratify the treaties with the separatists, opening the way for more open support for the enclaves Russia’s backed since their foundation. Putin’s decision to recognise them effectively torpedoes years of diplomatic efforts to implement a peace accord to resolve a conflict that has killed 14,000 since Russia-backed separatists seized control of the two areas in 2014.
©2022 Bloomberg L.P.
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