Putin Ignores Western Sanctions, Recognizes Crimean Independence

This post has been updated.

Hours after the United States slapped new sanctions on Russian officials for threatening the territorial integrity of Ukraine, Russian President Vladimir Putin signed a decree recognizing Ukraine’s Crimean peninsula as an independent state. The defiant decree, published on the Kremlin’s official website, displayed Putin’s eager willingness to break with Washington and could likely mark the first step in Russia’s absorption of the Black Sea peninsula.

Earlier in the day, President Obama warned Putin not to take such action. "We are imposing sanctions on specific individuals responsible for undermining the sovereignty and territorial integrity and government of Ukraine," President Obama said Monday. "We’re making it clear there are consequences for their actions."

The U.S. sanctions will block the assets of seven Russian officials and four Ukrainian leaders, among them ousted President Viktor Yanukovych and separatists in Crimea. Congress is considering legislation that would go even further.

A punishing, if double-edged, weapon to use against Russia would be to target the country’s energy powerhouses, especially Gazprom and Rosneft. The two companies dominate Russia’s energy production and exports, and are the key levers by which Putin wields energy as a geopolitical weapon. German newspaper Bild reported last week that top Russian energy officials, including the chief executives of both firms, are on the long list of possible European sanctions targets.

Going after the energy firms would obviously deal a blow to an economy that is increasingly in trouble — both now and in the future. Oil and gas exports make up about half of Russia’s federal budget now. And both Gazprom and Rosfneft are at the heart of Russia’s efforts to increase production of oil and gas in cooperation with foreign partners including BP and Exxon.

But taking such a step would be particularly painful for Europe, which relies on Russia for about 30% of its natural-gas supplies. With spring looming and gas storage full, Europe is not held hostage by Russian energy the way it was in 2009, when Moscow shut off gas supplies in a dispute with Ukraine. But there is simply no way for Europe to make up for missing Russian supplies in the near term, so the end result would most likely be electricity rationing, higher prices, or blackouts.

Simply put, energy trade between Europe and Russia is a two-way street: Both sides are vulnerable if energy supplies are threatened, whether by EU sanctions or by Russian supply disruptions. In a statement from the Russian Embassy in Washington, an official warned that "Reciprocal steps from the Russian side will definitely follow." 

On Monday, Obama said that he would continue to work with U.S. allies to support Ukraine and would travel to Europe next week.* Vice President Biden will leave tonight to meet with officials in Poland, Estonia, Lithuania, and Latvia.

The move came just hours after European foreign ministers said that they planned to target a broader, but overlapping, list of 21 Russian and Ukrainian officials.  The Russian officials targeted on the U.S. list include influential Putin advisor Vladislav Surkov, Kremlin economic advisor Sergei Glazyev, and chairman of the Federation Council Valentina Matviyenko among others. The EU list didn’t sanction those three, but did include others on the U.S. list: Sergey Aksyonov, who claims to be the Crimean prime minister, and Vladimir Konstantinov, the speaker of the Crimean parliament. The EU list included a total of eight Crimean leaders and 13 Russian officials.

Senior administration officials threatened further sanctions if Moscow moves to formally annex the breakaway province — a move that is expected as early as Tuesday. They also emphasized the historic importance of Monday’s actions.

"These are by far the most comprehensive sanctions applied to Russia since the end of the cold war," said a senior administration official, speaking anonymously according to the conditions of a background call for reporters. In a subtle swipe at the Bush administration, the officials noted that similar punitive actions were not taken in the aftermath of Russia’s invasion of Georgia in 2008.

The Obama administration also laid out the possibility of future sanctions against anyone aiding Russian officials, including "any individual or entity that operates in the Russian arms industry," in a new executive order targeting Russia specifically.

Though the U.S. sanctions measures have been drafted broadly enough to include any company or individual aiding the Russian government, the administration has also sought to emphasize that it is taking a targeted approach. Officials said Monday that the United States sought to freeze the assets of individuals and not the assets of any state-owned companies that they manage.

Putin will address the Russian public on Tuesday in a planned speech where he is widely expected to call for the formal annexation of Crimea by Moscow. Although Putin is not a target of Monday’s sanctions, a senior administration official emphasized that the people targeted are in the Russian strongman’s inner circle.

"It is a highly unusual and rather extraordinary case when the United States sanctions a head of state of another country," the official said. "We do not begin these types of sanctions efforts with the head of state."

The officials emphasized the punishing impact the Ukrainian crisis has had on the Russian economy, with its stock market declining 14.7 percent and the Russian ruble depreciating almost 3 percent against the dollar. In January and February alone, investors have withdrawn $33 billion from the country — a figure that could reach as high as $55 billion by April.

"It’s imposing real costs," said the official.

Russian Deputy Prime Minister Dmitry Rogozin who was sanctioned by the U.S. scoffed at the sanctions on Twitter, suggesting that he wouldn’t be affected because he didn’t have any assets outside the country.

"I think some prankster prepared the draft of this Act of the US President," Rogozin said in a tweet Monday after sanctions were announced.

Anders Aslund, a senior fellow at the Peterson Institute for International Economics, said it was good that the U.S. and Europe are doing something, but it’s not enough.

"Is the West prepared to do something serious so it can stop Putin?" Aslund asked in an interview. He said Monday’s move was an "insufficient answer" that indicated the West’s answer was "either ‘no’ or or ‘I don’t know.’"

Aslund said a serious response would be sanctioning all the big state companies, freezing Russia’s foreign reserves and investigating all the top Russian officials for money laundering.

Given their more measured approach, American and European officials are clearly hoping not to have to go that far.

Keith Johnson contributed to this report.

*Correction, March 18, 2014: Vice President Biden is in Europe for consultations with the leaders of Latvia and other Baltic states about how to respond to Russia’s annexation of Crimea. This article yesterday incorrectly said President Obama would be traveling to Latvia. (Return to reading.)