THE HAGUE/MOSCOW (Reuters) - Russia and the West drew a tentative line under the Ukraine crisis on Tuesday after U.S. President Barack Obama and his allies agreed to hold off on more damaging economic sanctions unless Moscow goes beyond the seizure of Crimea.
Describing Russia as a "regional power" and not the biggest national security threat to the United States, Obama said Russian forces would not be removed militarily from Crimea, but the annexation of the Black Sea region was not a "done deal" because the international community would not recognize it.
"It is up to Russia to act responsibly and show itself once again to be willing to abide by international norms and ... if it fails to do so, there will be some costs," he told a news conference at the end of a nuclear security summit in The Hague.
After scoffing at a decision by Obama and his Western allies to boycott a planned Group of Eight summit in Sochi in June and hold a G7 summit without Russia instead, the Kremlin said it was keen to maintain contact with G8 partners.
"The Russian side continues to be ready to have such contacts at all levels, including the top level. We are interested in such contacts," President Vladimir Putin's spokesman, Dmitry Peskov, told Interfax news agency.
Obama said he was concerned at the possibility of further Russian "encroachment" into Ukraine and believed Putin was still "making a series of calculations." He insisted Russian speakers faced no threat in the country, contrary to Moscow's assertions.
He urged Putin to let Ukrainians choose their own destiny free from intimidation, saying he was sure they would opt for good relations with both the European Union and Moscow rather than making a zero-sum choice for one against the other.
"Russia is a regional power that is threatening some of its immediate neighbors, not out of strength but out of weakness," Obama said. "We (the United States) have considerable influence on our neighbors. We generally don't need to invade them in order to have a strong cooperative relationship with them."
Asked what was to stop a further Russian "land grab", the U.S. president drew a distinction between an attack on members of NATO, covered by its Article V mutual defense clause, and on non-members where the West could apply international pressure, shine a spotlight on those states and provide economic support.
A senior administration official told reporters traveling with Obama on Air Force One to Brussels that "there's no question that NATO is prepared to defend any ally against any aggression."
The official said that in Obama's talks on Wednesday with NATO's secretary general, "we'll be discussing very specifically what more can be done in terms of signaling concrete reassurance to our Eastern European allies." Previewing Obama's speech in Brussels on Wednesday, the official said the president "will speak about the importance of European security and not just the danger to the people of Ukraine, but the danger to the international system that Europe and the United States have invested so much in that is a consequence of Russia's actions."
The ruble firmed and Russian assets climbed on Tuesday after Obama and fellow G7 leaders held back from new sanctions and investors took the view that the crisis had been contained for now.
Dutch Prime Minister Mark Rutte said the United States and European Union allies were aligned in their response, contrary to media reports that Washington was pushing reluctant Europeans fearful for their economic interests to get tougher.
Moscow made two conciliatory gestures on Monday after its deputy economy minister said up to $70 billion in capital may have fled his country in the first quarter of the year.
Foreign Minister Sergei Lavrov met his Ukrainian counterpart, Andriy Deshchytsia, for the first time, even though Russia does not recognize the Kiev government.
Moscow also allowed monitors from the pan-European security watchdog OSCE to begin work in Ukraine after prolonged wrangling over their mandate, which Russia says excludes Crimea.
The Ukrainian Foreign Ministry said Deshchytsia protested at the annexation of Crimea. Lavrov said Russia did not intend to use force in eastern and southern regions of Ukraine, and "the two sides agreed not to fuel further escalation in the Crimea problem that could cause casualties", it said.
Ukraine ordered its remaining forces in Crimea to withdraw for their own safety on Monday after Russian forces fired warning shots and used stun grenades when they stormed a marine base and a landing ship. There were no casualties.
That order came too late to save the job of interim Defense Minister Ihor Tenyukh, sacked by parliament on Tuesday over his handling of the crisis, after it emerged that fewer than a quarter of soldiers in Crimea plan to stay in the military.
Lawmakers elected Mykhailo Koval, head of the Ukrainian border guard, to replace Tenyukh.
In the Perevalnoye base, 25 km (15 miles) southeast of the capital, Simferopol, somber-looking Ukrainian troops loaded a freight truck with furniture, clothes and kitchen appliances.
"We are not fleeing, but leaving to the mainland where we will continue to serve," said a soldier who identified himself only as Svyatoslav. "One cannot be a soldier without a country and we have to relocate," he said.
But in the Belbek air base stormed four days ago, officers and soldiers refused to leave until the Russian military releases their commander, Colonel Yuliy Mamchur, who became a symbol of Ukrainian resistance in Crimea. According to his aides, Mamchur is being held in the Russian Black Sea Fleet's home port of Sevastopol.
IMF DEAL SOUGHT
Ukrainian Finance Minister Oleksander Shlapak said he was negotiating with the International Monetary Fund for a loan package of $15 billion to $20 billion because the economy had been severely weakened by months of political turmoil and mismanagement. He forecast a 3 percent contraction in the economy this year.
Obama also urged the IMF to reach agreement swiftly on a financial support package for Kiev, which would unlock additional aid from the European Union and Washington.
Increasing the chances a Ukraine aid bill will get through the U.S. Congress, Senate Democrats agreed on Tuesday to drop language in their measure containing reforms to the IMF. There had been stiff opposition to the IMF measures in the Republican-led House of Representatives.
The legislation backs a $1 billion loan guarantee for the government in Kiev, provides $150 million in aid for Ukraine and neighboring countries and requires sanctions on Russians and Ukrainians responsible for corruption, human rights abuses or undermining stability in Ukraine.
The measure is now expected to pass through Congress relatively quickly and be sent to Obama to sign into law, as long as another dispute over whether to include increased natural gas exports in the bill does not hold it up again.
Both the West and Russia sought to woo other key nations present in The Hague. Obama, who discussed the Ukraine crisis with Chinese President Xi Jinping on Monday, met President Nursultan Nazarbayev of Kazakhstan, which is part of a customs union with Russia but is also seeking to join the World Trade Organization.
Nazarbayev, a ruling politburo member before the collapse of the Soviet Union in 1991, expressed understanding for Russia's position in a telephone call with Putin on March 10.
Lavrov sought support from foreign ministers of the BRICS grouping of emerging economic powers - Brazil, Russia, India, China and South Africa.
In a joint statement that did not mention Ukraine or take a position on the annexation of Crimea, they said: "The escalation of hostile language, sanctions and counter-sanctions, and force does not contribute to a sustainable and peaceful solution ..."
European diplomats said tentative signs that Putin may have decided to go no farther than Crimea in his campaign to protect ethnic Russians in former Soviet republics may reflect concern about the mounting economic consequences.
The crisis is also taking a toll in Western Europe. German business morale dropped for the first time in five months in March as firms in Europe's largest economy began to worry that a standoff with Russia and further sanctions over Ukraine would hurt them in a key market, the Munich-based Ifo institute said.