OPERATOR: Excuse me, everyone. We now have our speakers in conference. Please be aware that each of your lines is in a listen-only mode. At the conclusion of the presentation, we will open the floor for questions. At that time, instructions will be given as to the procedure to follow if you would like to ask a question.
I would now like to turn today's conference over to Anya Schmemann. Ms. Schmemann, please begin.
SCHMEMANN: Thank you very much, and hello, everyone. Good afternoon. I'm Anya Schmemann. I'm an assistant dean at the School of International Service at American University, and I'm very pleased to be moderating this breaking news media call for the Council on Foreign Relations.
This is an on-the-record call. We're going to be discussing regional security and economic implications of the escalating events in Ukraine. And I do point you to cfr.org for additional resources and background information on Ukraine, Russia, and the E.U.
I'm very pleased to be joined by three excellent experts today to give us all some context and some analysis on these really rapidly moving events. I'm joined by Charles Kupchan, who's the Whitney Shepardson Senior Fellow at the Council on Foreign Relations. Dr. Kupchan is also a professor of international affairs at the Walsh School of Foreign Service in government -- and the government department at Georgetown University.
Also, Robert Kahn, who's the Steven A. Tananbaum Senior Fellow for International Economics at the Council on Foreign Relations. Dr. Kahn has held positions in the public and private sectors and has an expertise in macroeconomic policy and finance.
And Janine Davidson, who is senior fellow for defense policy at the Council on Foreign Relations. Dr. Davidson's areas of expertise include defense strategy and policy, military operations, and national security.
So welcome to the three of you, and thank you very much.
SCHMEMANN: We have all been really riveted by ongoing events in Ukraine. There has been unrest since November, when President -- then-President Yanukovych turned abruptly away from an association agreement with the E.U. toward Russia and Russia offered a financial package. And it was followed by demonstrations on streets in Kiev and elsewhere in Ukraine, which really reached a head last week.
And I just wanted to give a very quick rundown of events in the last week, since things have been moving so quickly. On February 21, the E.U. brokered an agreement with protest leaders in Ukraine and with Yanukovych to form a new government and hold an early election. But then Yanukovych fled Kiev after protesters took control.
On February 22, the parliament voted to remove Yanukovych and hold new elections. And his archrival, Yulia Tymoshenko, was freed from prison. On February 24, the Ukrainian interim government drew up a warrant for Yanukovych's arrest. And on February 26, Yatsenyuk was named prime minister. He was a leader of the opposition. And in Moscow, Putin ordered military exercises across the border. On February 27, gunmen seized regional parliament and government buildings in Crimea. Crimea, of course, as you all know, is a majority Russian-speaking peninsula in the south of Ukraine. And on February 28, Russian troops take up positions around strategic locations on the Crimean peninsula. And March 1, Russian troops take over Crimea, without firing a shot.
And now we seem to be at a standstill, everyone waiting to see what will be next. There have been some rumors today about ultimatums, although those haven't been confirmed. President Barack Obama said today that Russia's military moves in Crimea violated international law and said that no country has a right to send in troops to another country unprovoked.
Charlie Kupchan, President Obama has said that the United States is examining a series of economic and diplomatic steps to, quote, "isolate" Russia. What really can the United States do in this situation? Some have said that this is a decisive moment for President Obama, but the U.S. has largely been on the sidelines of this developing crisis. What can the United States do with its allies and partners to help contain the situation?
KUPCHAN: Well, I think that the -- I wouldn't say the U.S. has been on the sidelines, because I think the -- the action has been on the ground in Ukraine, and the ability of the United States acting in coordination with its allies, principally in the European Union, they have limited reach, limited leverage when it comes to reversing what has happened over the last few days.
And basically, what has happened is that the Russians have established effective political and military control over the Crimean peninsula. And the only way to undo that in the near term is either to use military force -- and that's out of the question, because I don't think anybody believes that it is of significant enough interest to introduce NATO or American forces -- and the second one is to try to negotiate, to reason with, to open dialogue with the Russians in combination with a set of increasing costs.
And those costs are essentially, at this point, focused on three kinds of measures. One is the isolation of Russia diplomatically, suspension from the G-8, canceling the Sochi summit scheduled for June, suspending the NATO-Russia Council, canceling bilateral and multilateral fora on trade and other issues.
The second area is economic sanctions, either targeted against specific individuals or against, perhaps, Russian oligarchs close to Putin. And then the third area would involve some kind of NATO engagement. My guess is bolstering defenses on the eastern frontier, the Baltics, Poland.
None of those, I think, are sufficiently potent to get -- to get Putin out. And unfortunately, he has really moved in, in a big way in the last 48 hours. The piece of news that I found most troubling today -- and it's unconfirmed. I saw reports on both sides of the ledger -- was that the Russian navy was pressuring the Ukrainian navy based on the Crimean peninsula to turn its back on Kiev and put its vessels under the authority essentially of the Russians. And that would suggest that Putin is looking to strip away some of the assets and authority of the government in Kiev, which is obviously of import in terms of how far he's willing to go.
My own best guess is that Putin may have already accomplished his objective, which is to embrace Ukraine -- excuse me, embrace the Crimean peninsula and effectively put it under Russian control. And at this point, I don't think it matters that much whether it's an independent Crimea or a Crimea that rejoins Russia or just a Crimea that is controlled by Russia, like South Ossetia and Abkhazia in Georgia, and I see this as in many respects a response to what happened in Kiev over the last few weeks, which is a serious body blow to the Russians.
Putin has been nothing if not a Russian nationalist intent on rebuilding a Eurasian union that calls forth Slavic and orthodox solidarity. And what happened in Ukraine was not just a tactical defeat for Putin -- that is to say, a rejection of Russian diplomacy and a failure of diplomacy, because they've been on Yanukovych, who's now a criminal in his own country -- but a strategic blow, because Ukrainians said, We don't want a Eurasian union. We don't believe in this vision of Slavic brotherhood and orthodox brotherhood and a Eurasian bloc. We want to go for Europe.
And so I see in many respects Putin is lashing out, attempting to grab the Crimean peninsula, attempting to cater to his electoral base, to the military, to the security apparatus by saying, well, we may have lost Ukraine to some extent, but we have the Crimean peninsula.
Now, that's a sort of guess as to what would happen in the next week or so. If I'm wrong, and Putin starts to mess around in eastern Ukraine, either by provoking trouble across communal boundary lines or by sending troops into the eastern part of the country, then I think we really have a huge full-blown crisis on our hands.
I'm guessing that he's not going to do that, because if you look, for example, at Georgia, when he could have gone to Tbilisi and toppled Saakashvili, he didn't do so, because I think he doesn't want to push too far, he doesn't want to pull Russia into a civil war in Ukraine and have that instability on his borders.
So my best guess is what we're seeing is a grab of the Crimean peninsula. It's now up to Obama and his European partners to figure out how to respond. There are not a lot of good options, because the U.S. still needs Russia on Iran, on Syria, and on other issues. However, Putin has clearly crossed a very important line, and I think it cannot go without some serious response from the United States and its allies.
SCHMEMANN: Thank you, Charles Kupchan.
And to Robert Kahn, so Russia now holds Crimea. Meantime, in Kiev, a new government, a fragile government is struggling to regain control, assert some authority, and to manage this crisis. Ukraine's economy is in shambles by many accounts. And they are in desperate need of some assistance and help.
President Obama has called on Congress to work on an economic package for Ukraine. E.U., World Bank, and IMF are all putting together packages. So what can be done to support the Ukrainian economy and to assist Ukraine?
KAHN: Well, Anya, thank you for including me on the call. The first thing they need to do is outside of Ukraine, and it builds on what Charlie said, in terms of the use of sanctions. The point I would emphasize is that to the extent sanctions can work, and I believe they can often have an effect over time, it's only if they're done on a multilateral basis, by working, in this case -- primarily for me, that would mean creating pain for the Russian elites and creating incentive for a deal. And whether that's travel bans, asset freezes, or other restrictions on trade, I think these are the things we have -- we may have to be looking at, but they will require multilateral support.
We are seeing, by the way, that in that regard the turmoil in the Ukraine is affecting Russian markets. We are seeing some significant declines in stocks and in the exchange rate, and those effects are real on Russia. At the same time, Russia does have very substantial buffers and will use them. We saw this in 2008, the last time there was this kind of a politically induced turmoil.
But turning specifically to your point, absolutely, Russia -- Ukraine has some very significant financial needs. And the critical point to understand in this regard is that this has been a financial disaster that has been a long time in the making and has now crystallized with this political crisis. They've had several years of recession, large current account and fiscal deficits that -- least year, for example, the fiscal deficit was around 7.75 percent of GDP and would probably be as large or larger this year, given that I suspect there's not much tax revenue being collected right now.
They also had large external imbalances, a current account balance that was over 8 percent of GDP. Now, that will have come down with the crisis -- the capital controls, the crisis, and limited funding, but there is no doubt that this is a country that has some very significant external and budgetary needs. Their reserves are very low. They are coming down very quickly in terms of what they report. My concern will be that actually the amount of liquid reserves they have is even less than that.
And so we don't really have a lot of time to get some financing to them. The trouble is this. The Western package that we are talking about assembling that would involve in the lead the IMF, supporting, as you said, by the EBRD and by bilateral assistance, takes time to put together. It's not because we don't know what needs to be done. I would argue that the policies that Ukraine has to put in place to become sustainable that they have to do in their own interests are pretty well understood and even appreciated by the Ukrainians.
The problem is, we don't really have a government in place now that can make those kind of commitments on energy prices, on reforming state enterprises, on fixing the budget, and on corruption. We can't make those kind of promises now with any credibility.
The government understands that this is the challenge, and they talk -- the interim government has talked of becoming a kamikaze government, by which they mean that the interim government would quickly agree with the IMF, agree to some program with very harsh upfront measures, go and do them, become incredibly unpopular doing so, and then leave the scene, leaving the new government with a sound set of economic policies.
It's a great story if you can do it. It's very hard to pull this off in practice. This government is -- is very fragile. The coalition is already under some strain. And, of course, we have the possibility, as Charlie laid out, that we could see some material efforts at destabilization from the Russians going forward.
So for all of that, to ask them to -- at a time when they're already not paying their pensions in full to be cutting them further and to be raising energy prices by 70 percent, 80 percent, or whatever would be asked for, is hard for me to imagine being stabilizing.
What we need to do is to put some money into Ukraine in a way that provides that external and fiscal financing, provides some time and acts as a bridge to the point where we have a government that can make these kind of commitments, presumably after elections.
And so I would argue that really what we need to be doing is -- is, yes, have those conversations with the IMF about the long-term future of Ukraine, the policies that need to be done and how to get there, but we need to supplement that in a first stage with some rapid money that really doesn't have a lot of conditions attached to it and which would help them get to that second stage.
And that could involve bilateral money. It could involve actually a little bit of money from the IMF. But it's going to require the Europeans and the U.S. to step up and to put some money on the table that really goes against the grain of what they would normally like to do, and it's going to take them outside their comfort zone, but I think it would be worth it to consider it.
SCHMEMANN: Thank you very much, Robert Kahn.
And Janine Davidson, on the defense side and in terms of military planning and options from the Pentagon, it's been said that the United States doesn't really have a lot of quivers in its bow when it comes to this crisis in Ukraine, that the United States is unlikely to intervene in a military way, and it'll be more likely to use some of these economic tools that Rob Kahn has detailed for us.
But having said that, obviously, military planning continues. Can you tell us a little bit about what military options there might be for the United States and NATO in the days ahead, and especially if this situation does continue to escalate?
DAVIDSON: Right, sure. Thank you very much for including me in this call. I think, you know, when you think about military planning, there are -- it's not true that there are no options, but it may be true that there are no smart options. I mean, there are always plenty of things that the U.S. and NATO can do militarily. We have an array of assets in the region, from carrier battlegroups to ships that are there for the ballistic missile defense in Europe, and all the things we have stationed in Europe. I mean, there's -- there are definitely things that can be done.
The question is, are there things that should be done? Military action in any situation is going to change the dynamics on the ground and often can make things worse without necessarily changing the foundational problems.
Now, the situation that we have right now with Russia in the Crimea, none of this is surprising from sort of a basic military strategic perspective. I mean, we can talk about Putin's larger intents. And I think Charlie did a great job on that. But just from a security perspective, it's not surprising. It's -- the Crimea is Russia's main warm-water port. The Ukraine and Russia have had a bilateral treaty for a number of years that allows Russia to keep its Black Sea fleet in the region.
And so absent sort of assurances from Kiev that those agreements are going to be in place, not surprised that Putin took the opportunity to do what he did. So then the question is now, what's next? And what are the options for the U.S. and the E.U.?
I'm kind of thinking through three scenarios. I mean, the first one is what we have right now, where we have sort of simmering tensions on the peninsula. The biggest problem in a situation like this is the -- or the biggest risk is that of unintended risk is that of unintended escalation.
I mean, you've already seen the -- the reports that are conflicting about whether or not certain navy commanders are threatening -- Russian commanders are threatening and laying down ultimatums on the ground to the Ukrainian forces, that then Moscow says that is not happening. And so you -- it is -- you know, history's filled with situations where military commanders accidentally escalate and then the situation completely changes, and I think that that's definitely something to consider.
I think that the -- sort of watching this all unfold, the bigger military things that we should be considering is, you know, if Russia does become more ambitious and tries to move beyond Crimea, and we can't sort of dial that down, dial Putin's ambitions down, this is a big problem. I mean, it's one thing to sort of assert your rights to, you know, take your -- hold your bases and such in Crimea. It's another thing to start moving into Ukraine.
Taking on this problem militarily would be a major military offensive by the U.S. and NATO to -- there's -- I would suspect that the Ukrainians would definitely resist, and so then you would have the risk of a civil war. The options in that case are, I mean, to militarily assist the Ukrainian military, which is pretty outgunned compared to the Russians. The Russians have some 854,000 troops compared to the Ukrainians, who have about 130,000. I mean, they have a minuscule amount of tanks compared to the Russians. I mean, it's not -- it's not a fair fight, let's just say.
However, I kind of think that this would be pretty unwise for Putin to escalate militarily in this way. Again, it's one thing to take on Crimea and some of the areas where the population is more leaning towards Russia, Russian-friendly, as I would say, but as you move further west, it gets increasingly more difficult.
And any smart military planner -- and there's a lot of military planners out there that aren't smart and don't think about it -- but any military planner should be thinking about what's next. And if Putin were to be more ambitious and start moving into Ukraine, now he's got a situation where not only does he have to hold this ground, but he'd definitely going to be facing resistance from Western-leaning Ukrainians who've already demonstrated their ability to protest and probably -- probably some sort of an insurgency as he tries to occupy that area. I would think that would be a very unwise sort of thing -- thing to do.
So the biggest risk right now is unintentional escalation. I think we should be prepared, however, for -- if this does spiral out of control and we end up with an all-out civil war between the two sides, we should be prepared for at a minimum humanitarian options, and those are things -- that is something where the militaries can be of assistance. If there's, God forbid, refugees flowing and a situation like that, we should be definitely thinking through plans for that.
SCHMEMANN: OK, thank you. So all eyes on Ukraine and Crimea, and the big question is whether Putin doubles down in Crimea or continues on into eastern Ukraine. So thank you, all three of you, for those introductions.
For anyone who joined us late, just a reminder that this is an on-the-record CFR media call on Ukraine. We're discussing regional security and economic implications of the crisis in Ukraine and Crimea. And we're joined by Charles Kupchan, Robert Kahn, and Janine Davidson of the Council on Foreign Relations.
Operator, I think we're ready to take some questions now.
OPERATOR: Thank you. At this time, we will open the floor for questions. If you would like to ask a question, please press the star key, followed by the one key on your touch-tone phone now. Questions will be taken in the order they are received. Again, that is star, one to ask a question.
Our first question comes from Steve Collinson with AFP.
QUESTION: Hi. Can you hear me OK?
SCHMEMANN: Yes, go ahead.
QUESTION: Yep. Just wondered if you could sort of address the importance of NATO in this and U.S. leadership in NATO. Has there been a sort of dampening of NATO's focus on its own backyard in recent years, as it's been, you know, concentrating on Afghanistan and some small peripheral sort of security issues? And did that in any way contribute to, you know, Putin's calculation in this?
And, secondly, how important is it for the president to be seen symbolically and actually sort of corralling the Europeans and acting as the head of NATO in a way that he's probably not had to do so far in his presidency?
SCHMEMANN: Thank you. Charles Kupchan, why don't you take that, the importance of NATO here?
KUPCHAN: Yeah, I think that the alliance is likely to shift back to a more traditional mode. That's already beginning to happen because of the withdrawal from Afghanistan and the degree to which I think many NATO members felt like Libya didn't go all that well. And in hindsight, in fact, very few NATO members actually participated in that operation.
And over the last decade-plus since Poland and the other new democracies joined NATO, they have always said to the United States, the Germans, the French, we're spending too much time focused on out-of-area issues and not enough time focused on the meat and potatoes, that is to say NATO's eastern frontier.
And they may get some of what they want now. I think it's too soon to arrive at that conclusion. But if things continue to go south in Ukraine and Putin demonstrates a readiness to venture into eastern Ukraine, I wouldn't be surprised if we see some operational planning, maybe some maneuvers, possibly the deployment of NATO troops now and again in the Baltic countries or in Poland.
There was a gentleman's agreement of sorts when NATO expanded that NATO would not put troops into the territories of the new members. That gentleman's agreement may end up being called into question.
I agree with Janine that we want to avoid unintended escalation, and by going down that path, we re-militarize the relationship between the West and Russia, but if -- if Putin continues on his current course, I fear that we may be heading in that direction.
Obviously, this is for deterrent purposes, but I think the -- what happened in the Crimean peninsula is going to keep the Poles and the Latvians and the Lithuanians up at night, and they may be asking NATO to do things to reassure them.
On the question of Obama and leadership, yes, I think that he does need to step up and provide a level of leadership at a time when that's not going to be easy. We've already seen in the last 48 hours some differences of opinion, with the Germans saying, hey, it's too soon to suspend Russia from the G-8, it's a good forum for discussing these issues, and I would -- I would simply point out that the European Union member states rely on Russian gas for about 25 percent of their -- of their gas.
Those pipelines running from Russia to E.U., where do they go through? Ukraine. Eighty percent of the gas that the E.U. gets from Russia comes through Ukraine. And so when you add up the economic issues, the investment of various E.U. states in good relations with Russia, the Germans in particular, getting a united front on how to confront Russia is not going to be easy, but I do think that a united front is necessary and that Europeans and Americans should try to move in lockstep in deciding how to impose costs on Russia for its behavior.
SCHMEMANN: OK, thank you. And thank you for that reminder about those important gas pipelines. Operator, we'll take a next question.
OPERATOR: Your first question comes from Paul Blake with BBC News.
SCHMEMANN: Go ahead, Paul.
QUESTION: Hi there. Thanks for taking my question. Along the same lines of the pipelines into Russia, I was wondering what the chances are of the West, in particular the European Union, imposing sanctions on Putin or -- or onto Russia and what effect that would have on the broader European economy.
SCHMEMANN: Rob Kahn, that one to you.
KAHN: Yeah. OK, just -- there's different pieces to that. One is, as Charlie was saying, is the oil and gas trade. Breakdowns in that hurt both sides pretty hard. I think we saw in '05, '06 and '07, when the gas was used as a lever by the Russians, that it wasn't a terribly effective tool. I do think since then, the Europeans have diversified a bit. And, of course, the Ukrainians can siphon off some of the oil that -- the gas that goes through them onto Europe.
So I don't know that it's -- I think there will probably be institutional resistance from the Russian energy interests, in terms of using that as a weapon. So from the Russian side, I see maybe more of a look at the trade -- at the trade levers that they have, maybe blocking things at the border, maybe restricting certain types of critical element trade, and that could be costly.
From the European side, one could imagine, if there was the united front that Charlie spoke to, we could see some -- some restrictions on trade. I don't expect it, and I don't expect it to be terribly effective in the near term.
I see the real battleground being on the financial side. You know, Russia business interests and Russian oligarchs, you know, they have their businesses, they have their wealth, and in many cases they have their homes in the West. They are integrated into Western financial markets in a way a lot of -- a lot of countries aren't.
And so in that regard, I think a very -- very significant set of financial sanctions importantly aimed at the individuals could be actually quite effective over time. It would take some time to bite. And I think that would be where there would be the most fruitful collaboration. But, again, it would take a really unified front to make that work.
SCHMEMANN: OK, thank you. Next question, please?
OPERATOR: Our next question comes from Kevin Cirilli with Politico.
QUESTION: Yes, this question is for Dr. Kahn. Thank you to CFR for setting up this call. It's very helpful. Earlier today, Senate Majority Leader Harry Reid said that perhaps one of the areas in which the United States could clamp down against Russia is the banking sector. And he said, quote, unquote, "We can pretty much control banking, which is very important to Russia." Can you just elaborate on -- on the U.S. involvement in Russian banking and the influence that we could have against Russian banking?
KAHN: Well, of course, I don't know entirely what he had in mind, other than to say that certainly it seems that on the Hill today sanctions -- talk of sanctions is all the focus, and there does seem to be broad bipartisan support for doing something in that regard.
You know, I do think, in the extreme, you could restrict the ability of U.S. or U.S.-based banks to do business with Russian entities. And since pretty much all major banks have operations in the United States and would be affected by such a ruling, that could be very powerful.
What we see, for example, in the cases of Iran and North Korea, that these type of very broad-based financial sanctions can hurt -- hit, that seems a very unlikely next step. And so I had assumed -- I would assume, listening to them, that you could -- that on the margins you could tighten up things like know your customer rules and other reporting rules and try and take advantage of the fact that many Russian individuals in accessing financial institutions in the West are benefiting from a degree of anonymity that if brought to the surface could be troubling, and I think you probably have to go in that direction. Beyond that, I'm not entirely sure what he had in mind.
The other point, if I can, Kevin, just to add to it, to your question, you know, in my opening remarks, I mentioned that I do think there needs to be a financial package that has a U.S. element to it. My preference for that would be some bilateral loan guarantees of the sort we have done historically for Israel and Egypt and then more recently during the Arab Spring for Tunisia and Jordan. That would require the Congress to approve it. And that would be -- you know, a tough ask.
But it does seem to me that if we're going to think about sanctions, maybe we need to think about pairing those two requests together, where we're both saying we're going to use these sanctions as a way of trying to bring Russia to the table to have -- to cut a deal, and at the same time we're going to give some resources to the Ukrainians to get to that point, to survive to that point.
QUESTION: OK. And just a quick follow-up. Earlier today, Russia's central bank increased their rate, just as their market crashed. Should U.S. -- are U.S. companies, like ExxonMobil, are they going to be concerned at all about the -- the market dive, really, in Russia? How could that reverberate for U.S. companies and global markets?
SCHMEMANN: Just quickly, Rob.
KAHN: It's a good question. You know, I -- right up until now, I would say that what's happening in Russia is not systemic, not in the sense of 1998 with the Russian crash. And so certainly institutions, be they U.S. or other institutions that have operations in Russia and are financing in there, are going to face much tougher conditions. There's going to be a recession in Russia. We're going to see -- as you pointed out -- higher interest rates. And -- and there's always the risk of sanctions and countervailing sanctions and the like, so certainly that's going to hit.
But I don't think it's going to force -- and, indeed, if you -- if you are losing money in one part of the world, there's always the possibility that you may have to sell assets or tighten your belt elsewhere, and so it can have some knock-on effects. But at this point, I don't see what is going -- what's happening here as a direct threat so far to the global operations or the large -- of large U.S. firms.
QUESTION: Thank you.
SCHMEMANN: OK, thank you. Operator, next question, please.
OPERATOR: Our next question comes from Margaret Warner with PBS News.
QUESTION: Thank you all for doing this. What, if any, are the U.S. or NATO's treaty obligations to Ukraine under this Partnership for Peace? Are there any at all? And also, is there any sort of enforcement mechanism to this Budapest Memorandum of 1994 that people keep talking about, which was to assure or guarantee the, you know, sort of territorial integrity of Crimea and Ukraine?
SCHMEMANN: Thank you very much. Janine, why don't you take that, NATO treaty and the Budapest Memorandum?
DAVIDSON: Sure. Ukraine is not a member of NATO, as we know, so they're not under Article 5. So under the Partnership for Peace, that's more about training and helping build up the Eastern European countries' militaries. So, you know, I -- the sort of trigger response of NATO and having a military obligation is not really there.
So on the Budapest thing, I think I'd let Charlie answer that one, though.
KUPCHAN: I don't -- I'm not fully up to speed on that, but I'll give you my take on it, and that is that this was a product of the earlier stages of NATO enlargement, in which there were questions about how far and wide this process would go forward and how to manage the -- the relationship with Russia while moving forward.
And at this point, the whole idea of further NATO enlargement beyond certainly the Balkans is pretty much on ice. That came to a halt during the Bush years. And as far as I know, there -- there are no political, legally binding commitments that follow on from what I think were aspirational statements about the possibility that one day Ukraine, Georgia, other states, further beyond NATO's current disposition would join.
So, basically, where we are is what Janine stated, in that there is no formal commitment of the United States or any E.U. countries or NATO countries to the territorial integrity of Ukraine. There is obviously a commitment that comes through the United Nations on the territorial integrity of Ukraine, but that's not something that has legally binding status in the same way that Article 5 does.
SCHMEMANN: I think that's right. My understanding is that the Budapest Memorandum is a diplomatic memorandum, not necessarily an official treaty. It does have the word "commitment" in it, but there is some question about whether that is legally binding and requires action in any way. And there is some debate about that. So thank you for...
QUESTION: Wasn't also the -- the sort of assumption was that it wouldn't be one of the parties to the memorandum that would be sort of doing the aggression? So, you know, that they would agree to affirm their commitment, to go to the U.N. Security Council, but that it was never really thought that one of -- one of them would be -- that Russia would be the reason, that it would be some sort of an outside threat? To sort of -- you know, it's sort of bizarrely not applicable, maybe.
SCHMEMANN: Yeah, I think it's an interesting question, and I think some legal scholars will probably be taking it up and taking a very close look at the language there and the motivations. But I think, Charlie Kupchan, you can weigh in on this again, but my understanding is that it doesn't necessarily mean that action is required by anyone.
QUESTION: And could I just ask a quick follow-up? Poland has asked for this meeting of the NATO Council tomorrow, and they're talking about, you know, under the -- under Article 4 just the right to ask for such a meeting, if any NATO country feels its own political independence or security is threatened. What do you make of that? And the meeting is taking place tomorrow.
SCHMEMANN: Again, Janine, do you have a thought on that?
DAVIDSON: Yeah, I mean, I think it gets back to the -- one of the earlier questions that you had about NATO's sort of overall focus being internal, Article 5, traditional versus out of area, and it may be easy to look at what's been happening and think that NATO's been so wholly focused in Afghanistan.
But meanwhile, internally to the country, I think there has always -- there has been this simmering sort of -- or steady-state debate back and forth between the traditional NATO members on the western versus the eastern NATO members, like Poland, who have consistently, I think, tried to remind NATO of the original purpose and sort of remind NATO that, while they may not feel like there's the same sort of Cold War threat, that those countries on the eastern side still sort of feel it.
And this is, to me, a great example of Poland making that point, that you may not feel this in France and Germany and everywhere else, but this is real to us and we want to have this conversation, and asserting their right to make them -- make everybody come to the table and have a real conversation about what could happen next and how big could this get, and if so, trying to make sure that NATO will -- the NATO guarantee that Poland signed up for, that it will be there.
KUPCHAN: You may recall, Margaret, that during the Iraq war, when Poland took a pretty heavy role in Iraq, the defense minister who at that time was Radek Sikorski, who's now the foreign minister, was beating a path to Washington and going to the Pentagon and saying, listen, we're carrying a lot of a load in Poland -- excuse me, in Iraq, and in return, we would like you Americans to come to Poland. We want Uncle Sam on our soil, because we aren't comfortable living in Central Europe next door to Russia. And, effectively, you know, most American officials at the time said, go away, you know, leave us alone. And the idea that NATO should be spending time and energy dealing with the Russian threat simply struck people as a distraction.
So I think what's happening now is the Poles are sort of saying, "Told you so. We shouldn't have trusted Russia. Here's an example of how bad they can be. Now don't you think it's time to worry about NATO's own territorial defense in a way that we should have been doing all along?"
SCHMEMANN: OK. Thank you for those questions. Operator, next question, please.
OPERATOR: Our next question comes from Kenneth Bialkin with Council on Foreign Relations.
QUESTION: Thank you. This is Ken Bialkin. My question is the plateau from which conversations on the subject is proceeding. The first reaction we've had in America, from both Republicans and Democrats, as well as the government, is accusing Russia of aggression, of a violation of treaties, threatening of consequences, and we have some congressmen from both parties calling for retaliations and actions.
My question to you, is that a sensible way to begin, when we have a situation where there's no real government in Ukraine at all now? The government in force is unelected. We don't know who they are or where they come from. The old government is out to lunch. Elections are coming later in the year, both in Ukraine and in the peninsula, Crimea. And shouldn't we sooner produce arguments on what sanctions and what penalties and what troops and what movements we should have? Should we take a step back and try to get some dialogue, some conversation with the Russians, instead of immediately declaring them an enemy, and seeing how we deal with this action?
The Russians haven't really taken a definitive step in Crimea. They have a lease on a port and a lease for the freedom of action and motion of their fleet. They have legitimate interests to protect by reason of treaty. They have a history of 500 years of trying to move influence to the east off to Turkey. And we have a lot of areas where the Russians and the Americans have a similarity of interests in the fight against terrorism, being one, and to try to find an equitable solution in Iran.
Why isn't anybody talking about opening questions and discussions and debate and arguments, possibly involving intermediaries, possibly involving the U.N.? But even this conversation is proceeding on actions which sound more like military and punitive steps than maybe we should be discussing so soon.
And my question is...
SCHMEMANN: Thank you. I think we have the gist of it...
QUESTION: ... does this make any sense?
SCHMEMANN: ... about dialogue -- dialogue and engagement. Let's go to you, Charles Kupchan, on that. So President Obama and Putin did have a long phone conversation the other day. Apparently, it was a rather cold call. But shouldn't there be more? Should there be a bilateral meeting or another meeting, including Europeans and Ukrainians and the others, to discuss this crisis?
KUPCHAN: Well, you know, I think there are -- there are two issues I'd point out to in kind of following up on the question. One is that, yes, I mean, the dialogue should continue. The corridors of communication should remain open. It's far better for this to be solved through some kind of meeting of the minds than otherwise.
And I think that is happening, right? The phone calls are taking place. Anya, you mentioned, just as we were getting ready for the call, that the formation of a contact group in which Russia would participate. This would be a forum for trying to resolve a situation.
And, secondly, you know, we have to look at this crisis with a certain amount of sobriety, in the sense that we still need Russian cooperation, if we can get it, on a lot of issues, ranging from Iran to Syria to energy supply and price to Afghanistan. So everything else being equal, it would be great if we could get out of this current moment without a serious deterioration in the relationship between the United States and Russia.
That having been said, what has just happened is very serious. This is, I think, the most serious military/geopolitical crisis in great power relations since the Soviet Union fell apart. Just because Russia has a legally based fleet at Sevastopol does not mean that they didn't just break one of the most sacrosanct rules of international law and international norm. They've effectively invaded the Crimean peninsula and taken control of it.
QUESTION: Weren't they invited in? Weren't they invited in by the head of the Crimean government?
KUPCHAN: No, they were not. They went in of their own accord, and they are essentially turning the Crimean into a Russian puppet state, right? This is -- this is 19th century. This is the stuff of the Cold War. And that's why I think the response needs to be proportionately tough, while keeping in mind that we certainly don't want to turn back the clock and have a relationship with Russia that escalates in the direction of armed geopolitical rivalry.
SCHMEMANN: OK, thank you very much. Operator, next question.
OPERATOR: Our next question comes from Inga Czerny with Polish Press Agency.
QUESTION: Hello, thank you. Actually, you already answered my question, but, OK, maybe you could a little bit -- elaborate a little bit more, because I was wondering, what do you make of the argument that the U.S. relations, U.S.-Russia relations are already so bad that President Obama actually has not so much to lose, and he could proceed quickly with sanctions against Russia?
Because if there were little chance for new treaty on reduction of nuclear arm or some progress in the anti-missile fields, cooperation with Russia anyway? So, yeah.
SCHMEMANN: OK, thank you.
QUESTION: Thank you.
SCHMEMANN: Rob, part of that was about the possibility of sanctions, you know, against certain Russian individuals. Do you want to take that on?
KAHN: Uh-huh. Yeah, no, I mean, I think these -- as I mentioned before, they can be effective, but they have to be multilateral. You can't have a situation where the -- you know, the U.S. -- we put restrictions on the U.S. banks, but the Swiss banks or the German banks don't have such restrictions, but that they can -- it generally does take time for these to have effect, but they can ultimately be very powerful for an economy that is as integrated into the global economy as Russia is.
SCHMEMANN: Charles Kupchan, any further thoughts on U.S.-Russia relations?
KUPCHAN: Yeah, I would just add that -- or in response to Inga's question that I think the stakes are higher than your question indicated, in the sense that you're right to say that the relationship with Russia is not -- is not in very good shape. And, you know, Obama, in my mind, was impressively patient in keeping the reset on offer at a time when Putin was not playing ball.
And then a number of things came along, including Putin's position on Syria and then his readiness to offer asylum to Edward Snowden. And then I think Obama basically said, listen, I can't continue down this path. It's time to recalibrate our relationship with Russia.
But what -- what could potentially emerge from this moment is not just no further progress on arms control or no bilateral treaty on trade. What we could potentially see here is a much more troubled relationship. It could be the return to the international landscape of great power rivalry. We've been living in a very benign world from that perspective since the fall of the Berlin Wall. It's possible that what is going on now in the invasion of Crimea by Russia means that great power rivalry is back with us.
I wouldn't say that that's the case. I don't think we're there yet. I think it can be avoided. But I think this is -- this is an issue that we have to stare at straight ahead and recognize that those are the stakes.
SCHMEMANN: Janine, let me let you weigh in on this, as well, because this question is so important to U.S.-Russian relations going forward. And, of course, all this happened really following, you know, on the -- on the footsteps of the Olympics in Sochi, when all eyes were on Russia. So what do you think? Can this relationship be -- be put back on track?
DAVIDSON: Is that one for me?
SCHMEMANN: Yes, go ahead.
DAVIDSON: Yes, I agree with Charlie that the -- that we're sort of -- we're at an inflection point here with the Russian relations and that Obama did exercise extreme patience in attempting to reset. Putin has his -- his agenda. I mean, we -- we have so much control over what we control, but as we say, the other side has -- has control, as well.
I think that, in this particular case, to one of the other questions related, that, yeah, Russia has invaded Crimea. They have definitely stepped over the lines on the one hand. On the other hand, how -- the question is, how to dial this back, how to get this situation under control and then reassess the relationship. They've demonstrated that they can do this. They've demonstrated that they're willing to do this. The message is that they could go farther, for sure.
But if we dial back Russia's interests in Crimea and -- like I said at the beginning, it's not surprising that they would assert that they want guarantees that the deals that they've had with Ukraine in the past are going to still stand. Does that justify them marching into Crimea and taking over? Probably not, on the one hand. On the other hand, how can we assure Putin that -- that he will still have the -- the deals that he had before, that he'll still be able to have access to that warm water port? I mean, it makes -- it makes sense from his perspective that that's what he would want.
And I -- so I do agree with the caller that we need engagement on all those fronts. And this is also partly -- and not just partly, but majority-wise -- up to the new Ukrainian government, who needs to engage with Russia to give them those sorts of guarantees. Maybe in that way, we can at least dial back the tension on the peninsula and then reassess the relationship.
SCHMEMANN: OK, thank you. I think we can squeeze one more question in here, Operator.
OPERATOR: Thank you. Our next question comes from Stephen Stromberg with the Washington Post.
SCHMEMANN: Go ahead.
QUESTION: Hi, thank you for taking the call. I'd be interested to hear about how Russia's energy leverage over Ukraine and also its -- the rest of Western Europe factors in here, including in the decision about the scope and scale of possible sanctions.
SCHMEMANN: Rob Kahn?
KAHN: Well, it's a really -- it is the big question. It's a really good one. It's -- and it's a hard one. I mean, as I suggested earlier, I do believe that Russia's leverage over Western Europe is less now than it has been in the past, given the diversification that we have seen, and -- and that, conversely, sanctions that would threaten to basically not buy that may be less critical than maybe they were when there was more of a sole relationship.
There are things we can do here. Our colleague, Richard Haass, in a piece he has out today suggested that liberalizing our own gas and oil export rules to basically provide supplies to Europe would further reduce that reliance, and that's something interesting and worth looking at.
But in terms of how -- but in terms of the relationship between Russia and Ukraine, it's obviously a deep and very complicated relationship between the energy companies as between the government. There is -- there are issues of debt that are related to that. Some of that debt has quirky covenants in it, which will come due and create some pressure points for both sides, either both the Russians in terms of what those covenants demand and the Ukrainians, with the threat not to pay or to restructure that debt.
So I do think we're going to have a number of tripwires over the next several months in that relationship, and any of which could be -- create unintended consequences in parallel to what we've seen on the political side. But ultimately, it probably does give us more leverage for sanctions, if we choose to go down that route.
KUPCHAN: I would just add quickly that, you know, I guess I'm a little less sanguine than Rob. I think the -- you know, the Europeans remember when not too long ago the Russians did turn down the flow of gas, and it really had a big impact on gas flows in Eastern -- in Central Europe, E.U. member states. The gas that Ukraine has been getting from Russia is quite cheap. That was part of the deal. When the lease on Sevastopol was extended for 25 years, the Russians reduced gas prices.
And I think it is going to induce caution and prudence in Ukraine and in Europe about how far they want to push Russia on this front. And, you know, one final factor, it's worth pointing out that the Germans, because they're shutting down their nuclear energy, are hard-pressed for energy. And in that respect, the importance of imports from Russia is growing, not going down, and they're quite worried about the differential in prices.
Electricity in the United States is much, much cheaper than electricity in Germany. And they're worried that German companies are going to move here because of the shale gas revolution and the energy price differentials. Russia figures into that calculation.
SCHMEMANN: OK, thank you. And I'm afraid we are out of time. I thank you all for participating. I thank our three experts, Charles Kupchan, Robert Kahn, and Janine Davidson of the Council on Foreign Relations. And once again, this was an on-the-record call on Ukraine. This call will be posted to cfr.org, and I do invite you to go to the website for more about Ukraine, including an interview with Richard Haass and a new blog post by Robert Kahn on financial options for Ukraine. And there are plenty of other resources there, as well.
So, again, thank you all, and we will all stay tuned to this fascinating and troubling story. Thank you.