US hardens position on Russia sanctions

He listed the Russian side’s attack on Debalteseve, in east Ukraine, its resupply of paramilitary fighters in the region, and its fresh accumulation of forces near Mariupol, in south-east Ukraine, as its biggest sins.

“If this failure [to comply with the ceasefire] continues, make no mistake: There will be further consequences, including consequences that would place added strains on Russia’s already troubled economy”, Kerry said.

“There’s serious discussion taking place between us and our European allies as to what those next sanction steps ought to be and when they perhaps ought to be implemented. And I am confident that some additional steps will be taken in response to the breaches of this ceasefire”.

When asked if the US will start arms deliveries to Ukraine, he added: “We have to see what happens in the next few days with respect to the events that are taking place now on the ground”.

Kerry’s statement was endorsed by his UK counterpart, Philip Hammond.

A senior US diplomat, Daniel Fried, has also been in regular contact with EU national leaders and EU institutions in Brussels on the next steps to take.

Black Monday

The Kerry announcement comes ahead of what is likely to be a bad day for Moscow.

Low oil prices, existing EU and US sanctions, and the dim prospect of Russian economic reform prompted ratings agency Moody’s to downgrade Russian sovereign bonds to “junk” last Friday.

It follows a similar move by the S&P ratings firm last month. The two downgrades mean that some US investors, such as pension funds, will be legally obliged to divest billions of their Russian holdings when markets begin trading on Monday.

Meanwhile, the next round of economic sanctions is likely to include shortening the maturity of bonds and loans available to listed Russian banks, energy, and arms firms.

The move could have a “devastating” effect, one US source said, because several Russian companies will risk default when their dollar-denominated debt comes up for repayment or roll-over later this year.

“If we want to, we can really make them suffer … The inability to raise capital is hurting the most - there’s just no alternative to the US and EU financial markets”.

A second US contact noted: “You’re hearing a lot more calls percolating up on excluding Russia from Swift [the Belgium-based firm which handles international bank transfers]. That would strangle cashflow”.

Obama’s call

Both the Democratic and Republican parties also favour deliveries of arms, including anti-tank missiles and artillery-location systems, to Ukraine.

The final decision rests with president Barack Obama and his top security advisor, Susan Rice.

It's complicated because it would entail posting US military personnel to train Ukrainian soldiers.

“You don’t just give somebody a Carl Gustav [an anti-tank weapon] and say: ‘Here. Have some fun’,” a US military source said.

It also risks a backlash from Russia, while having a limited tactical impact.

The military contact said if Obama had done it eight months ago, it might have turned the tide of the fighting. But at this point, the Ukrainian military, even with modern weapons, has no means of reconquering Russian-occupied territories in east Ukraine.

If Obama does decide to do it, he’s likely to wait even longer - until April.

The US is currently in talks with Iran on a final nuclear non-proliferation accord, with Kerry meeting his Iranian counterpart in Geneva on Sunday and Monday.

But Russia, which is a party to the nuclear talks, due to conclude on 31 March, could threaten to sabotage the deal to gain leverage on Ukraine.

Frozen conflict

The “conventional wisdom” in Washington is that Russia will seize Mariupol in order to create a land bridge to Crimea, which it annexed last March, then “freeze” the conflict for a number of years.

Russian leader Vladimir Putin has made military threats against Kiev, Riga, Tallinn, and even Warsaw. His air force has also waged a harassment campaign on the fringes of Nato airspace.

But one of the US sources noted: “I think it’s all a bluff. He has enough people around him in the defence and foreign ministries who would tell him that [a military confrontation with Nato] is just going too far”.

Another US contact added that China, which needs the oil and gas that Moscow possesses in abundance, poses a bigger strategic threat to Russia in the long term than EU or Nato expansion.