Diplomatic whirl shows west unconvinced by Russian peacemaking

Russia insists it's serious about easing tensions with Ukraine, but the West remains to be convinced.

While rounds of top-level diplomacy are picking up, work continues on a package of sanctions to deter President Vladimir Putin from any escalation. The Kremlin denies any plans to invade Ukraine and dismisses US warnings of imminent military action as "hysteria". 

Yet faced with the most serious security crisis in Europe in decades, leaders are refusing to take Russia's announcement of a draw down of forces at face value. Investors have joined in the skepticism, with the ruble taking a hit while haven assets like Treasuries and the yen have gained.

The Biden administration has rejected Russia's claims of a troop pullback from Ukraine's border and said Russia has instead added as many as 7,000 military personnel to the area. Senior administration officials, who briefed reporters in Washington on Wednesday on condition of anonymity, did not offer evidence to support that assertion.

U.K. Defense Secretary Ben Wallace backed the US assessment. "I think we have seen the opposite of some of the statements, we've seen an increase of troops over the last 48 hours, up to 7,000, we've seen a bridge constructed from Belarus into Ukraine or near Ukraine," he told reporters on Thursday in Brussels. 

A cyber attack on Ukraine Tuesday from as-yet unidentified sources that became the longest DDoS, or distributed denial-of-service that Kyiv has experienced, did nothing to allay concerns. 

Russia denied the US claims it was moving more troops toward the border, and Interfax reported on Thursday that another train load with military equipment from the Southern Military District units had left Crimea after completing drills there.

"The statement about 7,000 is just as much a fake as the ones about an attack on Feb. 15-16," Foreign Ministry spokeswoman Maria Zakharova said in a text message Thursday, referring to earlier reports citing US officials as saying Russia might invade Ukraine this week.

On Tuesday, Putin made clear the order had been given only for a "partial" pullback and suggested a full return to base would depend on how talks with the West go.

Asked at a joint news conference with German Chancellor Olaf Scholz whether the return of troops would continue, Putin said that Russia's next moves would depend "on the real situation on the ground." That "doesn't just depend on us," he said, citing talks on Russia's demand for security guarantees from the US and NATO.

Hair-Trigger Swings

The tensions have resulted in hair-trigger swings on financial markets, with escalations sparking a rush into haven assets such as Treasuries and the yen. Signs of easing drove demand for riskier assets after equities sold off around the world and volatility gauges spiked higher. 

Underscoring the mistrust, European officials and diplomats are pursuing a dual track of diplomacy and deterrence, discussing the potential for refugees and other contingencies such as alternatives to Russian gas supplies.

US President Joe Biden spoke with Scholz by phone on Wednesday and European Union leaders will hold an emergency meeting about the Russia tensions on Thursday, while Putin will speak with Japan's prime minister. 

Foreign ministers from Group of Seven nations will meet on the sidelines of the Munich Security Conference on Saturday, potentially setting up a call of G-7 leaders next week. Also attending the conference in Munich will be US Vice President Kamala Harris and Secretary of State Antony Blinken.

Moscow could sustain its massive deployments at Ukraine's border for months to come if it wanted to, according to a senior Western intelligence official. A key test will come Feb. 20, when key military exercises with Belarus are scheduled to end and Russia said more of its troops will return home. 

Regardless, with oil close to $100 a barrel and a substantial amount in currency reserves, Russia has the finances to underpin the military maneuvers for as long as Putin determines them to be politically and militarily useful, the official said.

"Moscow has made it clear that it is prepared to contest the fundamental principles that have underpinned our security for decades and to do so by using force," NATO Secretary General Jens Stoltenberg said in Brussels. "I regret to say that this is the new normal in Europe."

— With assistance by Gregory White, Richard Bravo, Ilya Arkhipov, John Follain, and Hwee Ann Tan

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.