Scholz Halts Pipeline as Putin Backs Separatists: Ukraine Update

Russia’s lower house of parliament, the State Duma, unanimously ratified the Kremlin’s treaties recognizing two self-proclaimed republics in eastern Ukraine. President Vladimir Putin had already ordered his forces into the region. It follows weeks of warnings from the U.S. and its partners that Putin could be planning to invade Ukraine, something he has repeatedly denied.

European Union ambassadors met to discuss a plan for sanctions on Russia as German Chancellor Olaf Scholz said he would halt certification of the Nord Stream 2 pipeline. The question now is what the U.S. and its allies would define as an invasion, and what would trigger bigger sanctions. Some European nations have been wary of the economic fallout they could face from any penalties, especially given their dependence on Russia for natural gas.

Putin’s decree torpedoed Europe-mediated peace talks over a long-running conflict in eastern Ukraine between the Russia-backed separatists and the government in Kyiv. The ratified treaties allow Russia to build military bases in the breakaway zones.

EU Diplomats Push Sanctions Against More Than 360 Russians (12:40 p.m.)

The EU is considering sanctions against 351 lawmakers of the Russian state Duma who voted for recognizing separatist regions in eastern Ukraine, according to EU diplomats who declined to be named on confidential preparations. Another 11 Russians who proposed the recognition would also be targeted.

EU ambassadors also backed targeting commanders of forces that Putin has ordered into the area, the diplomats said. All member states backed the sanctions, they said, but Hungary offered a note of caution. The package has yet to be finalized and needs to be formally approved by member states.

The bloc also discussed targeting two Russian banks, and the financing of Russia’s sovereign debt, with the aim of stopping European institutions buying new Russian bonds or taking part in debt refinancing on the secondary market, one of the diplomats said.

Gas Rises After Scholz Halts Pipeline (12:35 p.m.)

European natural gas prices climbed off session lows after Scholz said certification of the Nord Stream 2 gas pipeline can’t take place right now. Gas futures were about 9% higher on the day after earlier paring a jump of as much as 13%.

Brent crude oil retreated after approaching $100 a barrel. Russia’s MOEX index stayed around 3.8% lower and the ruble maintained an advance of around 0.8% against the dollar.

Russia Sends Mixed Signals on Separatist Borders (12:26 p.m.)

Russian officials sent mixed signals Tuesday on just how big the self-declared separatist republics it’s recognizing are, raising the possibility of more conflict with Ukraine along the line of contact that now divides them.

Kremlin spokesman Dmitry Peskov said Russia is recognizing the borders where the republics exist and were declared.” But after being pressed by reporters about whether that included territory lost by the separatists to Ukrainian forces after the republics were formed in 2014, he declined further comment. A few minutes later, he said they would be recognized in the borders in which the republics were declared.” Meanwhile, Deputy Foreign Minister Andrey Rudenko was quoted by Tass as saying Russia recognizes the republics in the borders in which they currently exercise authority.

At present, separatists control only about 30% of the Donetsk and Luhansk Oblasts, or provinces, but they’ve claimed the entire territories at times. Ukrainian military forces have maintained a tense cease-fire across the line of contact with the separatists since a truce took hold in 2015, though both sides reported a surge in breaches in recent days.

Scholz Says Situation Changed on Nord Stream 2 (12:15 p.m.)

Scholz said that he has directed the Economy Ministry to withdraw a report on security of supply that is needed for the certification process of the Nord Stream 2 pipeline to move forward.

“That sounds technical but it’s the necessary administrative step so that no certification of the pipeline can happen right now,” Scholz told reporters in Berlin. “Without this certification Nord Stream 2 cannot go into operation.”

EU Leaders May Decide on Emergency Meeting (12:13 p.m.)

European leaders may decide on the timing of an emergency European Council by the end of the day, according to a European Union diplomat familiar with the talks.

Another diplomat, Lithuanian Deputy Foreign Minister Arnoldas Pranckevicius, said before a meeting in Brussels that: “We want to see not only sanctions against the individuals who are responsible for the recognition of the separatist republics of Donetsk and Luhansk, but now it’s also time to discuss sectoral economic sanctions to prevent further aggressive actions by Russia.”

There are still voices that are urging tougher sanctions on Russia to be approved as soon as possible, while some countries support a more gradual approach because of fear that Moscow may retaliate by cutting or reducing the flow of gas to the bloc.

Zelenskiy Mulls Cutting Diplomatic Ties With Russia (12:03 p.m.)

Ukrainian President Volodymyr Zelenskiy said he’d received a request from his Foreign Ministry to consider breaking off diplomatic relations with Russia after President Vladimir Putin ordered his troops into the separatist-held enclaves in Ukraine’s eastern Donbas region.

“By recognizing the so-called Luhansk and Donetsk People’s Republics, Russia is establishing legal grounds for further military aggression against Ukraine, violating all of its bilateral and multilateral obligations,” Zelenskiy told a joint news conference with his Estonian counterpart Alar Karis in Kyiv.

Zelenskiy called for a quick sanctions response, including halting Russia’s Nord Stream 2 gas pipeline to Germany. He added that he believes there will be no large-scale Russian invasion but if it happens his government will impose martial law.

Russian State Duma Ratifies Donbas Treaties (12:03 p.m.)

Russian lawmakers unanimously ratified treaties recognizing two self-proclaimed republics in Ukraine’s Donbas region in a televised vote. The upper chamber will vote on them later Tuesday.

The votes are a formality after Putin signed orders to recognize them on Monday. The treaties open the door for Russian troops to enter the territories, a move that would escalate tensions with the West.

EU’s Economy Chief Warns of Uncertainty to Outlook (11:12 a.m.)

The European Union’s commissioner for the economy, Paolo Gentiloni, warned that tensions related to Ukraine could undermine the economic outlook for the bloc.

“Uncertainty remains around us,” Gentiloni said at a conference in Brussels Tuesday. “And the violation of international law through Russian recognition of the two separatist territories in Ukraine will strongly increase this uncertainty.”

The warning comes after the EU revised its growth projection for the year downward on Feb. 10 to 4%. The outlook for 2023 is 2.8%.

Russia Legislator Backs Off Separatists’ Claims to More Land (10:04 a.m.)

A top Russian legislator disavowed earlier comments suggesting that Moscow would likely recognize the Donbas separatists’ claims to Ukrainian territory currently outside their control.

Leonid Kalashnikov, chairman of the State Duma committee responsible for ties with other former Soviet states, told Bloomberg by telephone that the earlier report of his comments by Interfax was inaccurate and the republics would be recognized as the separatists currently define them.

At present, separatists control only about 30% of the Donetsk and Luhansk Oblasts, or provinces, but they’ve claimed the entire territories at times in the past.

EU to Consider Limited Sanctions Proposal Tuesday (9:45 a.m.)

The European Commission will propose a limited package of sanctions to EU ambassadors Tuesday morning, according to a diplomat familiar with the preparations. The proposal will include a limited listing of individuals and entities and could include a ban on output from mines as well as a prohibition on trading with the affected regions.

Lithuanian Foreign Minister Gabrielius Landsbergis told reporters the escalation was short of the “invasion our partners have been talking about,” but still warranted “individual sanctions for the people who were responsible, banning European companies from working in the occupied territories, and a very clear message to Russia of prior sanctions over the violation of the Minsk agreements.’

An emergency meeting of the bloc’s foreign affairs council in Paris later Tuesday will seek to decide on those limited sanctions. “I believe that we need to impose the first package,” Latvian Foreign Minister Edgars Rinkevics said. Reaching agreement on broader sanctions and what would trigger those — against sectors like defense and finance — is expected to take longer and could require a meeting of EU leaders to resolve.

Trade and investment with the breakaway areas has already plummeted since Russian-backed separatists took control eight years ago.

— With assistance by Rosalind Mathieson, John Follain, Natalia Drozdiak, Aaron Eglitis, Milda Seputyte, Kateryna Choursina, Kevin Whitelaw, Joe Mayes, Rakteem Katakey, Bruce Douglas, Blaise Robinson, Ksenia Galouchko, Gregory White, Eduard Gismatullin, Anthony Halpin, Justin Sink, Alberto Nardelli, and Henry Meyer

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