FLIGHT MH17
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Malaysia Airlines flight 17

Stakes high for Obama and Putin amid fallout from shooting down of MH17

The downing of an airliner has led to a war of words, but with dilemmas facing both US and Russian leaders, what will either do next?

PUBLISHED : Sunday, 20 July, 2014, 6:36am
UPDATED : Sunday, 20 July, 2014, 2:06pm

The shooting down of a passenger jet over separatist-controlled territory in eastern Ukraine has already led to a war of words.

But when it comes to responding with actions, both Barack Obama and Vladimir Putin have been left with tough choices to make.

Despite levying six rounds of increasingly tough economic sanctions against Russia for its actions in Ukraine, the US president has left two rich targets untouched: Moscow's natural gas export behemoth and its main weapons exporter.

Financial warfare against Gazprom or Rosoboronexport could invite Russian retaliation against America's European allies and negative consequences for Washington - highlighting the dilemmas Obama faces as he weighs how to respond to the downing of the Malaysian airliner on Thursday.

"The problem is that there are really limits on what Obama can do," said Matthew Rojansky, a Russia expert at the Wilson Centre think tank in Washington. "Even if the impulse is to punish the Russians, you can only go so far in hitting them because of the wider repercussions" for European energy supplies and the global economy.

US officials said they suspected the Malaysia Airlines tragedy was the work of Moscow-backed rebels in Ukraine and that they hoped it would unite the 28-member European Union, whose sanctions on Russia have lagged well behind Washington. On Obama's orders, the US Treasury has carefully tailored sanctions to inflict maximum pain on Putin's inner circle and entities backing the Ukrainian rebels, while minimising the damage to European economies and American business. Republican critics have accused him of being too restrained towards Russia.

At a press conference on Friday, Obama warned he was prepared to tighten sanctions on Russia if it was deemed necessary, but he acknowledged the risk of sanctions harming the US economic recovery and the broader global economy.

"It is a relevant consideration that we have to keep in mind. The world economy is integrated. Russia is a large economy," Obama said.

For now, Obama and his aides appear to be waiting for an investigation to pinpoint responsibility for the downing of Flight MH17, and hoping the global outcry will prompt Putin to withdraw support for the rebels without further economic pressure.

Still, said a second US official: "We have plenty of room to escalate and hurt their economy."

The latest US sanctions on Russia were announced on Wednesday, the day before the Malaysian flight was shot down. They targeted two Russian banks, energy firms and defence-related entities. Notably absent was Gazprom, a significant energy supplier to Europe and to Ukraine itself. US officials acknowledge they have not targeted Gazprom to date because of concerns it could retaliate by curbing gas supplies to Europe, with significant economic impacts.

Also off the list was Rosoboronexport, which could cause a different kind of boomerang. In a quirk of geopolitics, the US buys Russian helicopters from the state-run firm to outfit US-backed Afghan security forces. Cutting off that flow could be "catastrophic" for Afghan forces fighting the Taliban, a US general told Congress on Thursday.

"If the US and the EU go the next step into broad-brush sanctions, Russia will retaliate," possibly by withdrawing support for critical nuclear talks with Iran, said Gary Hufbauer, a former Treasury official.

Hufbauer, now at the Peterson Institute for International Economics, predicted the next phase of US sanctions, if it comes, would involve more surgical targeting of Russian oligarchs and others close to Putin.

The tragedy has also confronted the Russian president with a dilemma he had sought to avoid: to continue to support the separatist insurgency in the face of a storm of international outrage, or cut the rebels off and allow them to be defeated by the government in Kiev.

Putin has tried to hedge his bets according to circumstances on the battlefield and Western pressure. He moved troops and tanks away from the border after the Ukrainian presidential elections in May, but moved them back in recent weeks.

Similarly, he initially appeared to distance himself from the rebels until Ukrainian forces under the newly elected president, Petro Poroshenko, made significant gains in the east, triggering a new supply of Russian equipment over the border, including anti-aircraft missiles.

The MH17 disaster forces his hand. Anything he does now will attract much more scrutiny. Arms shipments across the very porous Ukrainian border will now be seen as a direct threat to the international community. But pulling the plug on the separatists would leave them vulnerable to Ukrainian forces, handing a strategic defeat to Putin.

It is already clear from Friday's UN Security Council meeting that if the rebels are found to have used a Russian weapon, Moscow will be more isolated than at any time in recent history.

If it was confirmed that Russian-backed separatists fired the missile, one Western option would be to declare the rebel Donetsk People's Republic (DNR) a terrorist organisation, said Ben Judah, the author of Fragile Empire: How Russia Fell In and Out of Love with Vladimir Putin.

"Putin's greatest worry is that [the US] Congress will deem the DNR a terrorist organisation, responsible for the worst attack on a civilian airliner since 9/11, which would make Russia a state sponsor of terrorism," Judah said. "He will do anything possible to avoid that wrath, while not admitting anything.

"Meanwhile, this is a huge failure for GRU [Russian military intelligence], the FSB [the secret police] and the special forces. What kind of people are not capable of distinguishing a Malaysian airliner in the sky? It would not be surprising if the people involved were drunk. So heads will likely roll."

Stephen Sestanovich, a former US ambassador to Moscow, said: "Putin doesn't like to be put in a corner and doesn't like to feel he's backed down."

Reuters, The Guardian