There are signs tonight that divisions are emerging between the U.S. and Europe over how to respond to Russia’s invasion of Ukraine’s Crimea region. While the Obama administration has threatened a strong response, including punitive economic measures, European nations – which depend on Russia for energy supplies, trade and investment – appear to be backing away from financial sanctions.
President Obama said today the White House was “examining a whole series of steps – economic, diplomatic – that will isolate Russia and will have a negative impact on Russia’s economy and status in the world”. However, European foreign ministers, meeting in Brussels, resisted calls for sanctions. European leaders have also opposed U.S. calls to expel Russia from the G8 group of leading economies.
Several European countries are dependent on Russia for much of their energy, with Germany importing around 40 per cent of its oil and natural gas from Russia, and the European Union accounting for around three-quarters of Russia’s energy exports. European nations have lucrative trade deals with Russia too – France, for example, is building assault ships for its armed forces.
Britain, meanwhile, although not reliant on Russian energy, has extensive economic ties. Rising property prices are one of the cornerstones of the UK’s still tenuous economic recovery, and prices in London are rising at more than twice the rate of the national average. Russia’s oligarchs have invested heavily in property in the capital – they bought 8.5% of all London properties worth more than £2m ($3.3m) between March 2012 and March 2013, more than nationals of any other country. And each year hundred of millions of dollars of Russian money – much of it the ill-gotten gains of Vladimir Putin’s cronies – pass through the City of London’s banks and other financial institutions.
Britain’s opposition to sanctions was made embarrassingly public today when a secret government document was photographed as an official was carrying it into 10 Downing Street, the residence of Prime Minister David Cameron. The document said Britain should “not support, for now, trade sanctions … or close London’s financial centre to Russians”.
Russia’s economy is certainly vulnerable – $55bn was wiped off the value of Russian stocks today, while the rouble fell to all-time lows against the dollar and the euro. However, the fear is that any sanctions could be as harmful to Europe as to Russia, and European resistance could make it harder for the U.S. to impose harsh penalties. Senate Majority Leader Harry Reid said today that “[Europe’s] interests are really paramount if we are going to do sanctions of some kind. We have to have them on board with us”.
Speaking to the BBC this evening, Senator John McCain said Europe’s leaders would be “ignoring the lessons of history” if they decided that the cost of imposing severe sanctions of Russia were too high. But with the West divided on how to act, and more Russian troops pouring into Crimea every hour, it’s hard to see what can stop Putin annexing the peninsula, and securing a victory that would be equally humiliating for Europe and the U.S.