Second Cold War May Emerge From Crisis in Ukraine, Medvedev Says - Businessweek

(Corrects to say NATO, U.S. haven’t seen signs of pullback in 4th paragraph. For more on the crisis in Ukraine, see EXT2.)

Russia is being pulled into a new Cold War with the U.S. and its allies, who are using economic warfare reminiscent of the Soviet Union under Leonid Brezhnev, Russian Prime Minister Dmitry Medvedev said.

Russia has prepared a raft of retaliatory steps in response to potentially wider sanctions imposed by the U.S. and the European Union, Medvedev, 48, said yesterday in an interview with Bloomberg Television at his residence outside Moscow. While he didn’t give details of Russia’s potential steps, he described the punitive measures as a double-edged sword.

“We are slowly but surely moving toward a second Cold War, which no one needs,” Medvedev said. “We haven’t especially commented on” sanctions “or responded to them harshly, although we could do something unpleasant or offensive to those countries that are introducing these sanctions.” He blamed U.S. President Barack Obama, his one-time partner in a reset of relations, for a lack of “political tact.”

Medvedev’s comments counter signals of an easing in tensions less than a week before Ukraine’s presidential election. President Vladimir Putin yesterday ordered Russian troops near the Ukrainian border back to bases and welcomed efforts at dialogue between the Kiev authorities and their opponents. NATO and the U.S. said they saw no signs of pullback.

Russia, which brands as illegitimate the government that took power after the February ouster of Kremlin-backed President Viktor Yanukovych, hasn’t given a clear indication whether it will recognize the results of the election. The frontrunner is billionaire Petro Poroshenko.

‘Very Sorry’

Medvedev also refused to guarantee that Russia won’t incorporate the Ukrainian regions of Donetsk and Luhansk, which voted to break away in disputed referendums this month, saying that the U.S. and EU must pledge not to interfere in Ukraine and push it into NATO.

Medvedev, who was president from 2008 to 2012 during a period of rapprochement with the U.S., said he was personally disappointed in Obama’s handling of the Ukraine crisis.

“I’m very sorry that what we achieved then, the results we got, are now being reduced to zero,” he said.

The U.S. and the EU accuse Putin of stoking unrest by pro-Russian separatists in the east and south of Ukraine. Russia, which annexed Ukraine’s Black Sea Peninsula of Crimea in March, denies this and is urging a decentralization of powers in its former Soviet neighbor.

Gas Threat

Though the presidential election may offer a way out of the crisis by delivering a leader who enjoys support across Ukraine, it’s the result of an “anti-constitutional change of power,” Medvedev said. If certain regions don’t take part in the polls, this will cast doubts on its legitimacy, he said.

Adding to the pressure, Russia is threatening to cut off natural gas supplies to Ukraine next month unless it starts to prepay for the fuel after accumulating $3.5 billion of debt in unpaid bills. Medvedev said the government in Kiev must present a timetable for the settlement and make a “substantial” initial payment.

Ukraine rejected a more than 80 percent increase in Russian gas prices to $485 per 1,000 cubic meters in April after the Kremlin canceled discounts offered to Yanukovych in 2010 and last December.

‘Fundamentally Different’

A new Cold War leading to decades of ideological and geopolitical divide is unlikely because Russia is far weaker than the Soviet Union, said Dr. Bobo Lo, an associate fellow at the Russia and Eurasia Programme at London-based research group Chatham House. Even so, the disagreement over Ukraine will poison ties for the foreseeable future, he said.

“The problem here is that America, Europe and Russia have fundamentally different visions of how Ukraine should develop,” Lo said by phone from London. “It’s such a fundamental problem that it is difficult to be optimistic that it will be overcome any time soon.”

The U.S. and Europe say they will impose further sanctions on Russia if it disrupts the Ukrainian presidential election, while several top-level executives canceled plans to attend Russia’s annual investment forum in St. Petersburg this week, in another sign of Putin’s growing isolation.

Those decisions were the hallmarks of Soviet policy during the Brezhnev era that represent a “dead end,” Medvedev said.

“This is ideologization of the economy,” he said. “It’s exactly what we had during a certain period of the Soviet Union when it adopted bans on which countries not to trade with because they didn’t suit our country. That’s exactly what the U.S. administration is doing now.”

To contact the reporters on this story: Ryan Chilcote in Moscow at rchilcote@bloomberg.net; Henry Meyer in Moscow at hmeyer4@bloomberg.net; Olga Tanas in Moscow at otanas@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net Scott Rose, Torrey Clark