G7 leaders announced last night that they are ready to tighten sanctions on Russia if the situation in Ukraine continues to destabilize, after Kiev ordered its troops to leave the Black Sea peninsula for its own safety.
After an emergency meeting in The Hague on the sidelines of a nuclear security summit, a statement was issued saying the G7 remains "ready to intensify actions including coordinated sectoral sanctions that will significantly affect the Russian economy".
A US official told Reuters that Russian intervention in eastern or southern Ukraine would be the clearest trigger for additional sanctions.
It was also stated that the G7 summit was planned to be held in Brussels in June, instead of the scheduled meeting with Russia in Sochi.
"As long as there is no political climate for the G8, as is the case now, the G8 does not exist - neither as a concrete summit, nor as a meeting format," said German Chancellor Angela Merkel.
British Foreign Minister William Hague said that the G7 members will consider how to reduce Europe's dependence on Russian energy sources in the coming weeks and months.
The Russian foreign minister defiantly responded to the cancellation of the G8 summit in Sochi.
"If our Western partners think that this format is exhausted, we will not stick to that format," said Sergey Lavrov. "We don't think it will be a big problem if we don't meet."
Final resistance of Ukraine
Russian troops stormed the Ukrainian naval base in the port of Feodosia early yesterday.
One marine in uniform wept and blamed the government in Kiev for the chaotic end to the blockade.
"Yesterday we had an agreement: we will lower our flag and the Russians will raise theirs. But this morning the Russians attacked and fired. We had no weapons. We didn't even fire a bullet," Marine Ruslan, who was in the company of his wife and 9-month-old son, told Reuters.
A Ukrainian marine with his family after the fall of the base in Feofosija
Interim President of Ukraine Oleksandr Turchynov told the parliament in Kyiv that the remaining Ukrainian troops and their families will be withdrawn from the region due to "threats to life and health". This practically ended the Ukrainian resistance, less than a month after Vladimir Putin invoked Russia's right to intervene militarily on the territory of the neighboring country.
You are restrained
During the summit in The Hague, US President Barack Obama met with Chinese President Xi Jinping, who expressed support for Ukraine's sovereignty but refrained from criticizing Russia.
The West wants Beijing's diplomatic support in trying to rein in Putin, but while Xi has called for a political solution, he has not taken a tougher stance toward Moscow.
In a sign of a possible easing of tensions, Lavrov agreed to meet for the first time with his Ukrainian counterpart, Andriy Deshchitja, on the sidelines of the nuclear security summit.
The first 50 out of a total of 100 observers of the Organization for Security and Cooperation in Europe (OSCE) were deployed in Ukraine yesterday, but they will not be allowed to enter Crimea.
Western officials are now less focused on persuading Putin to give up Crimea — a goal that seems out of reach — and more on dissuading him from occupying other parts of Ukraine.
Tensions are costing Russia
Although the connection with the Russian economy will make it more difficult to convince EU members to impose tougher sanctions on Moscow, it seems that tensions over Ukraine alone are causing serious economic costs in Russia.
The Ministry of Economy announced yesterday that the Russian economy is experiencing insignificant growth, inflation is growing rapidly, and capital is flowing out of the country.
In February, Russian GDP grew by only 0,3 percent compared to last year, compared to 0,7 percent in January, Deputy Minister of Economy Andrej Klepač said. He predicts that capital outflows in the first quarter of this year will be "close to $70 billion," which is more than the outflow in all of 2013.
The Ministry of Economy expects inflation from 6,2 percent in February to reach around 7 percent this month.
Klepač said that Western sanctions have only a minor impact on the economy for now, but that economic indicators are falling because the current situation is undermining investor confidence.
"The deterioration of relations is a significant negative factor for economic growth and, accordingly, affects the outflow of capital," said Klepač.
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