[Senate Hearing 113-549]
[From the U.S. Government Publishing Office]






                                                        S. Hrg. 113-549
 
                   RUSSIA AND DEVELOPMENTS IN UKRAINE

=======================================================================

                                HEARING

                               BEFORE THE



                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              JULY 9, 2014

                               __________

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                COMMITTEE ON FOREIGN RELATIONS         

             ROBERT MENENDEZ, New Jersey, Chairman        
BARBARA BOXER, California            BOB CORKER, Tennessee
BENJAMIN L. CARDIN, Maryland         JAMES E. RISCH, Idaho
JEANNE SHAHEEN, New Hampshire        MARCO RUBIO, Florida
CHRISTOPHER A. COONS, Delaware       RON JOHNSON, Wisconsin
RICHARD J. DURBIN, Illinois          JEFF FLAKE, Arizona
TOM UDALL, New Mexico                JOHN McCAIN, Arizona
CHRISTOPHER MURPHY, Connecticut      JOHN BARRASSO, Wyoming
TIM KAINE, Virginia                  RAND PAUL, Kentucky
EDWARD J. MARKEY, Massachusetts
               Daniel E. O'Brien, Staff Director        
        Lester E. Munson III, Republican Staff Director        

                              (ii)        
                              
                              
                              

  


                            C O N T E N T S

                              ----------                              
                                                                   Page

Brzezinski, Zbigniew K., former U.S. National Security Advisor, 
  counselor and trustee, Center for Strategic and International 
  Studies, Washington, DC........................................    35
    Prepared statement...........................................    36
Chollet, Hon. Derek, Assistant Secretary of Defense for 
  International Security Affairs, U.S. Department of Defense, 
  Washington, DC.................................................    11
    Prepared statement...........................................    13
Corker, Hon. Bob, U.S. Senator from Tennessee, opening statement.     2
Glaser, Hon. Daniel L., Assistant Secretary for Terrorist 
  Financing, U.S. Department of Treasury, Washington, DC.........     7
    Prepared statement...........................................     9
Hadley, Hon. Stephen J., former U.S. National Security Advisor, 
  principal, Rice Hadley Gates, LLC, Washington, DC..............    37
    Prepared statement...........................................    39
Menendez, Hon. Robert, U.S. Senator from New Jersey, opening 
  statement......................................................     1
Nuland, Hon. Victoria, Assistant Secretary of State for European 
  and Eurasian Affairs, U.S. Department of State, Washington, DC.     3
    Prepared statement...........................................     5
    Response to question submitted for the record by Senator Ron 
      Johnson....................................................    48

                                 (iii)

  


                   RUSSIA AND DEVELOPMENTS IN UKRAINE

                              ----------                              


                        WEDNESDAY, JULY 9, 2014

                                       U.S. Senate,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:45 a.m., in 
room SD-419, Dirksen Senate Office Building, Hon. Robert 
Menendez (chairman of the committee) presiding.
    Present: Senators Menendez, Shaheen, Murphy, Kaine, Markey, 
Corker, Rubio, Johnson, Flake, and Barrasso.

          OPENING STATEMENT OF HON. ROBERT MENENDEZ, 
                  U.S. SENATOR FROM NEW JERSEY

    The Chairman. This hearing will come to order.
    We have two distinguished panels today to help us look more 
closely at developments in the Ukraine. We are pleased to have 
on our first panel the Assistant Secretaries from State, 
Treasury, and Defense to brief us on the situation on the 
ground, and on our second panel, two former National Security 
Advisors to provide insights into the broader geopolitical 
implications of Putin's actions in Ukraine.
    In the past week, Ukraine appears to have mobilized around 
its new President. Ukrainian Armed Forces have been actively 
re-closing their border with Russia and pushing back Russian 
separatists. At the same time, President Putin's instigation of 
this conflict continues to breed uncertainty as to whether a 
corner has, in fact, been turned. In my view, President Putin 
is entirely capable of trying to divide Ukraine one day and 
then, when the international community applies pressure, 
withdraw from the scene long enough to avoid the international 
community's scrutiny, while effectively continuing his 
aggression to achieve his intended goal.
    In June I wrote to President Obama, asking him to seriously 
consider implementing additional targeted sanctions as soon as 
possible to deter Putin from further destabilizing Ukraine. I 
fully appreciate the importance of acting in concert with our 
European allies to ensure that sanctions have their intended 
effect, but, at the same time, we should not hesitate to act 
unilaterally to support an independent Ukraine and counter 
malign Russian interference when delay threatens these goals, 
our strategic objectives, or our national interests. In the 
long run, a stable and secure region will serve our national 
interests and enhance opportunities for U.S. and European 
businesses.
    In my view, unless Putin is confronted with strong 
disincentives, he will continue to ensure that the Ukrainian 
Government will not be able to stabilize the situation and he 
will position himself to fill the power vacuum when the 
government cannot fulfill the needs of parts of the Ukrainian 
people.
    A question for our panelists today is, What steps and 
measures must Putin take now to demonstrate his commitment to 
resolving the conflict? And at what point would you call his 
bluff and proceed with additional sanctions?
    We are pleased to have distinguished panelists before the 
committee. We look forward to gaining a deeper insight into 
what is happening on the ground, as well as the broader 
geopolitical ramifications of Russia's actions.
    With that, let me turn to Senator Corker, the ranking 
member, for his comments.

             OPENING STATEMENT OF HON. BOB CORKER, 
                  U.S. SENATOR FROM TENNESSEE

    Senator Corker. Thank you, Mr. Chairman, and thanks for 
calling the hearing.
    I welcome our witnesses on both panels. I think we have got 
an outstanding group of people here today that I know will be 
very informative.
    I know this is almost becoming a cliche, but Russia seems 
to be a master at escalating and de-escalating at the same 
time, acts of duplicity which keep the Western world off 
balance. So, I look forward to hearing from our witnesses today 
at what phase they think we are in relative to Russia.
    We have some people here that are very committed public 
servants that I respect, but, I have to say, sometimes I am 
embarrassed for you as you constantly talk about sanctions, and 
yet we never see them put in place. So, I hope you will 
enlighten us today as to where we might be in that regard. 
Media outlets have talked about another round of sanctions that 
you are preparing. I hope that you will illuminate those today 
and talk to us a little bit about, as the chairman mentioned, 
what needs to occur, from Russia's standpoint, to either cause 
those to be put in place or not put in place.
    But, again, I really feel like the sanctions threats have 
been very hollow; candidly, they have some of the same 
characteristics of the redline we talked about in Syria. I 
certainly hope that changes soon, because, in getting to my 
final point, I worry that where we are going with Russia, 
relative to Ukraine, is what a National Security Advisor in 
Eastern Europe said to me recently; that he fears that our 
policy is taking us to a place where we are going to have a 
bitter peace with Russia, where, in essence, we sweep under the 
rug the actions that have taken place in Crimea and continue to 
take place in eastern Ukraine and we, basically, get back to 
business as usual. It looks like that is where we may be 
heading, which, over time, could lead to some more major 
consequences in Eastern Europe and the world. I hope that is 
not the policy that this administration is embarking on.
    I thank the witnesses for being here today, and look 
forward to your testimony.
    The Chairman. Thank you, Senator Corker.
    For our first panel today, we welcome back Assistant 
Secretary of State for European and Eurasian Affairs, Victoria 
Nuland; Daniel Glaser, who is the Assistant Secretary of 
Treasury for Terrorist Financing; and Derek Chollet, who is the 
Assistant Secretary of Defense for International Security 
Affairs.
    Let me remind our panelists that your full statements will 
be included in the record. I would ask you to try to summarize 
them in 5 minutes so we can enter into a dialogue.
    In the course of just receiving your testimony, Madam 
Secretary, I skimmed through it, and I hope that you will be 
ready to respond, if not in your statement, then when we get to 
Q&A, to this one line on the third page, where it says, ``we 
are ready to impose more costs, including targeted sector-
specific sanctions, very soon if Russia does not decidedly 
change course and break its ties with separatists.'' It seems 
like we have heard that, ``very soon'' before. So, maybe you 
can quantify that for us.
    And, with that, we recognize you.

STATEMENT OF HON. VICTORIA NULAND, ASSISTANT SECRETARY OF STATE 
 FOR EUROPEAN AND EURASIAN AFFAIRS, U.S. DEPARTMENT OF STATE, 
                         WASHINGTON, DC

    Ms. Nuland. Thank you, Chairman Menendez, Ranking Member 
Corker, and members of this committee, and thank you for the 
opportunity to speak with you again today on the situation in 
Ukraine.
    As you said, longer statement will be submitted for the 
record.
    In previous testimony before this committee, I have 
outlined four pillars of United States policy: support for 
Ukraine as it tackles its urgent political, economic, and 
security challenges; diplomatic efforts to try to de-escalate 
the crisis; imposing further costs, including targeted sectoral 
sanctions, on Russia and separatists who are fomenting violence 
and unrest in Ukraine; and, number four, reassurance of 
frontline NATO allies and friends, like Georgia and Moldova.
    Today, in my statement, I will focus on the first two lines 
of effort. Assistant Secretary Chollet will talk about our 
security support for Ukraine and our allies. And Assistant 
Secretary Glaser will talk about sanctions policy. But, of 
course, we will all answer your questions.
    Since I last appeared before you, voters from across 
Ukraine took to the polls on May 25 and elected President 
Poroshenko with 54.7 percent of the vote. Just weeks and days 
earlier, many doubted that the elections would even take place. 
It was the determination and courage of millions of Ukrainians 
to choose their own future that made free, fair elections 
possible along with the support of the international community. 
But, as you know, Ukraine's security remains under threat as 
fighting continues in eastern parts of the country, and Crimea 
remains under occupation.
    Against this backdrop, the United States is supporting 
Ukraine in this hour of its need. We have stepped up our 
security assistance, which Assistant Secretary Chollet will 
discuss. However, the more lasting antidote to separatism and 
outside interference, over the medium term, is for Ukraine to 
succeed as a democratic, free-market state, and to beat back 
the corruption, dependence, and external pressure that have 
thwarted Ukrainians' aspirations for decades.
    Since the onset of this crisis, with this Congress' 
support, we have provided Ukraine with a billion-dollar loan 
guarantee specifically targeted to soften the impact of 
economic reforms on the country's most vulnerable. We are also 
providing approximately $196 million in other assistance to 
Ukraine this year. Of this, we have already authorized $75 
million in support of economic reform, anticorruption measures, 
nonpartisan electoral assistance, nonlethal security 
assistance, and humanitarian aid for Ukrainians internally 
displaced from Crimea and eastern Ukraine. We are now working 
with President Poroshenko, Prime Minister Yatsenyuk, and their 
team to direct the remaining $59 million in four key areas: 
first, support for economic growth and reform; second, 
countering corruption; third, energy diversification and 
efficiency; and, four, constitutional reform and national 
unity. We will be sending up a formal congressional 
notification very shortly, but let me just give you some 
highlights.
    In the area of economic reform and growth, we will 
complement World Bank and IMF programs by working to help 
strengthen the Ukrainian banking sector, making the business 
climate more competitive and attractive to investors, and 
helping Ukraine diversify its export markets.
    Our anticorruption support will help support the 
government's new 3-year program and bolster its ability to 
deter, to detect, investigate, and prosecute corruption 
wherever it festers, and support civil society, the media, 
business, and government as they work together to root it out.
    In the energy area, we will help the government to 
restructure the sector and to deploy new technologies to 
increase energy yields and efficiency, and to assist Ukraine in 
developing national plans for sustainable use of natural 
resources.
    And finally, we will help the government implement the 
constitutional reform and broad decentralization of power at 
the local and regional level that has been central to President 
Poroshenko's peace plan and to rebuilding national unity.
    As we support Ukraine economically, as you know, we have 
also worked in lockstep with the Ukrainian Government and our 
European allies and partners to try to de-escalate the tensions 
with Russia and with Russian-backed separatists through 
repeated rounds of diplomacy, which we have talked about here. 
In successive settings, we have supported the Ukrainian 
Government's offers to address those concerns that are 
legitimate, of eastern Ukrainians and Russian speakers, by 
political means, and to offer an off-ramp to separatists and to 
their Russian backers. These efforts have culminated most 
recently in President Poroshenko's broad-reaching peace plan, 
which he first presented in his inaugural address, which offers 
amnesty to separatists who lay down their arms, political 
dialogue, broad decentralization of power--in short, virtually 
all of the things that the separatists and their backers in 
Moscow have said that are needed.
    President Poroshenko, as you know, also initiated, on June 
27, a 10-day unilateral cease-fire to try to provide space for 
dialogue with separatists. But, as you also know, this cease-
fire was met with 10 days of violence, bloodshed, and 
separatists land-grabs as Russia simultaneously allowed tanks, 
heavy artillery, and fighters to flow across the border.
    On June 27, EU leaders again called on Russia to end all 
support for separatists, to control the border, to use its 
influence with separatists to return the three border 
checkpoints to Ukrainian authorities that they had taken, to 
release hostages, and to launch substantial negotiations on the 
peace plan. These are the same criteria that the United States 
is continuing to use to measure Russia's willingness to de-
escalate tension in Ukraine. As President Obama has said, ``We 
will judge Russia by its actions, not by its words.''
    The United States and Europe have imposed repeated rounds 
of sanctions to increase the cost Russia pays for its choices. 
And, as you quoted, Mr. Chairman, we are ready to impose more 
costs, including targeted sector-specific sanctions, very soon 
if Russia does not decisively change course and break its 
support for separatists.
    As Russia's economy teeters on the bring of recession, in 
part from the cost of its intervention in Ukraine and the 
impact of our sanctions, as noted in the latest IMF report 
released a week ago, Russians need to ask themselves what their 
government's policy has really delivered for them or for the 
people of Ukraine, other than economic hardship, violence, 
kidnapping, and death.
    Today, in Slovyansk, in Kramatorsk, and in other towns 
recently retaken by Ukrainian forces from the separatists, the 
Ukrainian Government is delivering humanitarian aid and 
restoring services. They are also working to restore the 
Ukrainian people's faith in their government's ability to 
provide a better future. Ukraine's success or failure in its 
struggle for peace, reconciliation, and human dignity will 
impact the future of the entire region, and, with it, the 
prospect for achieving America's 20-year objective of a Europe 
whole, free, and at peace.
    We, therefore, continue to have profound national interests 
in supporting the people of Ukraine in their quest for a more 
stable, democratic, and prosperous future. And, in this effort, 
we deeply appreciate Congress' continued bipartisan support.
    We look forward to your questions.
    [The prepared statement of Ms. Nuland follows:]

                 Prepared Statement of Victoria Noland

    Chairman Menendez, Ranking Member Corker and members of this 
committee, thank you for the opportunity to speak to you today on the 
situation in Ukraine and for your personal investment in the country's 
future. As many of you know from your travels, Ukrainians deeply 
appreciate this committee's bipartisan engagement on behalf of their 
country's security, democracy, and sovereignty.
    In previous testimony before this committee, I have outlined four 
pillars of U.S. policy: support for Ukraine as it tackles urgent 
political, economic, and security challenges; diplomatic efforts to de-
escalate the crisis and to encourage Russia to end support for 
separatists; readiness to impose further costs--including targeted 
sectoral sanctions--on Russia and separatists for fomenting violence 
and unrest in Ukraine; and reassurance of frontline NATO allies and 
friends like Georgia and Moldova. Today, I will focus on the first two 
lines of effort. A/S Chollet will talk about our security support for 
Ukraine and our NATO and partner reassurance measures. A/S Glaser will 
discuss sanctions policy.
    Since I last appeared before you, voters from across Ukraine took 
to the polls on May 25 and elected President Poroshenko with 54.7 
percent of the vote. Just weeks and days earlier, many doubted the 
elections would take place, let alone result in such a strong 
democratic mandate for change. It was the determination and courage of 
millions of Ukrainians to choose their own future that made free, fair 
elections possible, along with the steadfast support of the 
international community, including intensive electoral monitoring. In 
the weeks since, President Poroshenko has launched a 15-point peace 
plan, reached out to the east with offers of dialogue and 
reconciliation, and signed the final economic chapters of Ukraine's 
historic Association Agreement/Deep and Comprehensive Free Trade Area 
with the European Union. But Ukraine's security remains under threat: 
despite regaining control of Slovyansk and Kramotorsk, fierce fighting 
continues to rage in parts of eastern Ukraine; heavy weapons, materiel 
and support have flown across the Russian border; Russia has thousand 
troops deployed on Ukraine's eastern border, and Crimea remains under 
occupation.
    Against this backdrop, the United States is supporting Ukraine in 
its hour of need. We have stepped up our security assistance, which A/S 
Chollet will discuss. However, the most lasting antidote to separatism 
and outside interference over the medium term is for Ukraine to succeed 
as a democratic, free market state, and to beat back the corruption, 
dependence, and external pressure that have thwarted Ukrainians' 
aspirations for decades. Since the onset of the crisis, with your 
support, we have provided Ukraine with a $1 billion loan guarantee 
specifically targeted to soften the impact of economic reforms on the 
country's most vulnerable. We are also providing approximately $196 
million in other assistance to Ukraine this year. Of this, we have 
already authorized nearly $75 million in support for economic reforms 
and anticorruption measures; nonpartisan electoral assistance including 
the OSCE's special monitoring mission and other election observers; 
nonlethal security assistance; and humanitarian aid for Ukrainians 
internally displaced from Crimea or the East.
    We are now working with President Poroshenko, Prime Minister 
Yatsenyuk, and their team to direct $59 million to efforts in four 
target areas: support for economic growth and reform; 
countercorruption; energy diversification and efficiency; and 
constitutional reform and national unity. We will send up a 
congressional notification very shortly, but let me share some 
highlights.
    In the area of economic reform and growth, we will complement World 
Bank and IMF-led fiscal and financial sector reforms with programs to 
strengthen the banking sector; to make the business climate more 
competitive and attractive to investors, including in the agriculture 
sector; and to help Ukraine diversify its export markets. We are also 
looking at how we can support President Poroshenko's plan for economic 
revitalization of the country's east and south.
    Our anticorruption support will help the government implement its 
recently announced 3-year anticorruption strategy and 6-month action 
plan by bolstering Ukraine's ability to deter, detect, investigate and 
prosecute corruption wherever it festers; and by supporting citizens, 
civil society, media, business and the government as they work together 
to confront this scourge.
    U.S. support in the energy area will include expertise and advice 
to the government as it seeks to restructure and reform the sector, and 
deploy new technologies to increase energy yields and promote 
efficiency. And we will assist Ukraine in developing national plans for 
sustainable use and management of natural resources.
    And we will help the government with the constitutional reform and 
broad decentralization of power that President Poroshenko has pledged 
as an integral part of his peace plan and his effort to rebuild 
national unity. This will include support and advice at the federal, 
regional, and local level to implement political reform and 
decentralization, and support for free and fair parliamentary elections 
when they are called.
    As we support Ukraine economically, we have also worked in lock-
step with the Ukrainian Government and our European allies and partners 
to try to de-escalate tensions with Russia and Russian-backed 
separatists. In successive settings, from Secretary Kerry's bilateral 
meetings with Russian Foreign Minister Lavrov in March to the April 
17th Geneva Joint Statement of U.S.-Ukrainian-Russian and EU Foreign 
Ministers to the June 5th G7 declaration, we have supported the 
Ukrainian Government's offers to address the legitimate concerns of 
eastern Ukrainians and Russian speakers by political means, and to 
offer an off-ramp to separatists and their Russian backers. These 
efforts culminated in President Poroshenko's peace plan, which offers 
amnesty to separatists who lay down their arms, political dialogue, 
broad decentralization of power to Ukraine's regions and localities--
including over finances, language and culture, and local elections--in 
short, virtually all the things that the separatists and Moscow had 
demanded for months. President Poroshenko also initiated a 10-day 
unilateral cease-fire from June 20-30 to provide the space for dialogue 
with the separatists. But as you know, the cease-fire was instead met 
with 10 days of violence, bloodshed, and land grabs by Russian-backed 
separatists. Three Ukrainian border posts fell into their hands during 
this period. Russia allowed tanks, heavy artillery, and fighters to 
flow across the border, and continued to build up its forces and 
weapons on Ukraine's border.
    On June 27, EU leaders again called on Russia to end all support 
for separatists; to control the border; to help establish an effective 
OSCE monitoring regime; and use its influence with separatists to 
return the three border checkpoints to Ukrainian authorities, release 
the hostages they hold and launch substantial negotiations on the 
implementation of President Poroshenko's peace plan. These are the same 
criteria that the U.S. will continue to use to measure Russia's 
willingness to de-escalate tensions in Ukraine. As the President has 
said, we will judge Russia by its actions, not its words. Russia has 
made too many commitments at the diplomatic table over the past 4 
months that have been rendered hollow by the weapons, cash, and 
fighters that continue to flow across the border to fuel the fight in 
eastern Ukraine. In response, the U.S. and Europe have imposed repeated 
rounds of sanctions to increase the cost Russia pays for its choices. 
And we are ready to impose more costs--including targeted sector-
specific sanctions--very soon if Russia does not decisively change 
course and break its ties with separatists.
    As Russia's economy teeters on the brink of recession in part from 
the cost of its intervention in Ukraine and the impact of U.S. and 
international sanctions as noted in last week's IMF report, Russians 
need to ask themselves what their government's policy has really 
delivered for them or the people of Ukraine except economic hardship, 
violence, kidnapping, and death. In Crimea, inflation has risen to 16.8 
percent, tourism down 35 percent, and exports are plummeting. In 
Donetsk and Luhansk, separatists have engaged in looting and bank 
robbery, prevented the payment of pensions and wages, and held much of 
the civilian population hostage in their homes. Now that separatists 
are on the run, their tactics have become even more brutal as they set 
up landmines and roadside bombs and destroy bridges and other critical 
infrastructure.
    Today, in Slovyansk, Kramatorsk and the surrounding towns that 
Ukrainian forces have recently taken back from separatists' control, 
the government is focused on delivering humanitarian aid, water, food 
and supplies and reestablishing services from railway service to 
pension payments. They are working to restore Ukrainian citizens' faith 
in their democracy, their govenunent and its ability to serve people 
who have been abused for too long.
    Ukraine's success or failure in its struggle for peace, 
reconciliation, and human dignity will impact the future of the whole 
region, and with it, the prospect of achieving America's 20-year 
objective of a Europe whole, free, and at peace. We, therefore, 
continue to have a profound national interest in supporting the people 
of Ukraine in their quest for a more stable, democratic, and prosperous 
future. In this effort, we deeply appreciate Congress' bipartisan 
attention and support.

    The Chairman. Secretary Glaser.

  STATEMENT OF HON. DANIEL L. GLASER, ASSISTANT SECRETARY FOR 
 TERRORIST FINANCING, U.S. DEPARTMENT OF TREASURY, WASHINGTON, 
                               DC

    Mr. Glaser. Thank you, Chairman Menendez, Ranking Member 
Corker, and distinguished members of this committee, for 
inviting me to speak to you again about the administration's 
response to Russia's occupation and purported annexation of 
Crimea, and its continued provocative actions elsewhere in 
eastern Ukraine.
    In my remarks today, I will discuss our continuing efforts 
to impose additional costs on those who seek to destabilize 
eastern Ukraine and maintain the occupation of Crimea. I will 
describe the impact that our actions have had on those 
targeted, as well as on the already faltering Russian economy. 
I will also discuss the support we and the international 
community have provided to Ukraine for its economic recovery.
    President Obama has issued three Executive orders granting 
Treasury authority to target those responsible for ongoing 
unrest in eastern Ukraine. We have now issued five rounds of 
designations under those Executive orders, responding to the 
actions of Russia and Russian-backed separatists in Ukraine, 
designating a total of 52 individuals and 19 entities, 
including four banks. In so doing, we have sought to have the 
greatest impact on those whose actions have threatened the 
sovereignty and territorial integrity of Ukraine, mainly 
separatist leaders, members of Putin's inner circle and the 
entities that support them, and Russian Government officials. 
Our actions have been complemented by designations announced by 
other countries, including the EU, Canada, and Australia.
    Most recently, on June 20, Treasury designated seven 
individuals who attempted to establish illegal governments in 
eastern Ukraine or assisted in arming separatist groups. The 
United States is working with Ukrainian authorities to identify 
and disrupt financing to those and other separatists.
    As President Obama has stated repeatedly, the United States 
remains prepared to impose additional sanctions, should 
circumstances warrant. Currently, we are developing a number of 
options, in the event Russia does not take immediate steps 
toward de-escalation, including actions involving a broad range 
of sectors. Of course, such preparation involves close 
consultation with our partners to maximize the impact on the 
Russian economy. In the past 2 weeks alone, I have personally 
traveled to France, Germany, and the U.K. to advance 
preparations. As Secretary Liu has said, ``If the moment comes 
when we need to take additional steps, we will be prepared to 
do so.''
    Our measures and the threat of future measures have 
exacerbated preexisting vulnerabilities of a Russian economy 
weakened by years of mismanagement. IMF growth projections have 
been downgraded twice this year and currently are close to 
zero. The uncertainty created by the combination of Russia's 
conduct in Ukraine and the ongoing threat of sanctions has led 
to challenges for Russia's economic outlook, its most prominent 
companies, and its economic policymakers.
    President Putin himself has said that Western sanctions 
imposed on Russia have had real impact on domestic businesses, 
including limiting access to funding for many Russian 
companies. As recently as this week, Russian Deputy Finance 
Minister Sergei Storchak conceded that Western sanctions are 
having a significant impact on the Russian economy. He went on 
to say that, ``The effect of sanctions has intensified because 
of the imposition of sanctions coincided with the fall in the 
growth rate of the Russian economy.'' Indeed, we have witnessed 
more than $50 billion in capital flight this year, and the IMF 
and the Russian Central Bank project that net outflows will 
reach $100 billion for the full year.
    Increased risk premiums have caused a spike in borrowing 
costs, shutting many Russian companies out of external debt 
markets. While Russian politicians project confidence in the 
face of sanctions, their government's actions show otherwise. 
The Russian Central Bank has raised key interest rates twice 
this year, and spent approximately $30 billion on foreign 
exchange reserves since March to stabilize the ruble amid heavy 
capital outflows in the first quarter. Despite these 
interventions, the Russian ruble has depreciated by 5 percent 
since the beginning of the year. President Putin admitted, last 
month, that the Government of Russia may need to intervene with 
budget funds to support Russia's banks.
    As a result of sanctions, the Russian Government has openly 
discussed diverting government funds to support Russian 
industry. Recently, President Putin stated that Russia needs to 
look into recapitalizing Gazprom by the amount it would cost to 
build infrastructure in the Far East.
    Taken as a whole, these measures indicate that the Russian 
Government is focused on short-term crisis-fighting and that 
its actions are costing Russia the investment needed to reverse 
long-term downward economic trends.
    In addition to our measures to isolate the Russian economy, 
the United States Government is working with the international 
community to support Ukrainian Government in returning the 
country's economy to solid footing. We are working with the 
IMF, World Bank, and others to ensure that Ukraine has the 
support it needs over the coming months, as I outline in 
greater detail in my written testimony.
    By combining our efforts to impose financial costs on those 
threatening peace and security in Ukraine with measures to 
encourage Ukrainian economic recovery, the United States 
Government is working to contribute to the development of a 
strong, unified, and prosperous Ukraine.
    Furthermore, we are prepared to take additional strong 
measures to impose severe costs on Russia in defense of 
Ukraine's sovereignty and territorial integrity.
    Chairman Menendez, I would be happy to answer any 
questions.
    [The prepared statement of Mr. Glaser follows:]

                 Prepared Statement of Daniel L. Glaser

    Chairman Menendez, Ranking Member Corker, and distinguished members 
of this committee, thank you for inviting me to speak to you again 
about the administration's response to Russia's occupation and 
purported annexation of Crimea and its continued provocative actions 
elsewhere in eastern Ukraine.
    In my remarks today, I will describe our continuing efforts to 
impose additional costs on those who seek to destabilize eastern 
Ukraine and maintain the occupation of Crimea. I will describe the 
impact that our actions have had on those targeted, as well as on an 
already faltering Russian economy. I will also discuss the support that 
we and the international community have provided to Ukraine for its 
economic recovery.
          imposing costs for continued instability in ukraine
    The President has issued three Executive orders granting Treasury 
authority to target those responsible for ongoing unrest in eastern 
Ukraine and Russia's purported annexation of Crimea. We have now issued 
five rounds of designations responding to Russia's actions and Russia-
backed separatists in Ukraine, designating a total of 52 individuals 
and 19 entities, including 4 banks. In so doing, we have sought to have 
the greatest impact on those whose actions have threatened the peace, 
security, stability, sovereignty or territorial integrity of Ukraine--
mainly separatist leaders, members of Putin's inner circle and the 
entities that support them, and Russian Government officials. Our 
actions have been complemented by designations announced by others, 
including the EU, Canada, and Australia.
    Most recently on June 20, Treasury designated seven individuals who 
attempted to establish illegitimate governments in eastern Ukraine or 
assisted in arming separatist groups. These include: Denis Pushilin, 
self-appointed leader of the so-called ``Donetsk People's Republic''; 
Sergei Menyailo, who proclaimed himself ``acting governor'' of 
Sevastopol and assisted in the formation of so-called ``defense 
squads'' in Sevastopol; and Valery Bolotov, who proclaimed himself 
``governor'' of the Luhansk region and publically ``declared war'' on 
the government in Kiev. Additionally, the United States is working with 
Ukrainian authorities to identify and disrupt financing to these and 
other separatists.
    As President Obama has stated repeatedly, the United States remains 
prepared to impose additional sanctions should circumstances warrant. 
Executive Order 13662 authorizes the targeting of individuals and 
entities operating in sectors of the Russian economy as determined by 
the Secretary of the Treasury, in consultation with the Secretary of 
State. Currently, we are developing a number of options to take action 
under this authority in the event Russia does not take immediate steps 
toward de-escalation, including actions involving a broad range of 
sectors. Of course, such preparation involves close consultation and 
coordination with our EU, G7, and other international partners to 
maximize the impact on the Russian economy. In the past 2 weeks alone, 
I have personally traveled to France, Germany, and the U.K. to advance 
preparations. As Secretary Lew has said, if the moment comes when we 
need to take additional steps, we will be prepared to do so.
                           impact of measures
    Our measures and the threat of future measures have exacerbated 
preexisting vulnerabilities of a Russian economy weakened by years of 
mismanagement. IMF growth projections have been downgraded twice this 
year, and currently are close to zero. Moody's and Fitch have revised 
the outlook on Russia's sovereign BBB rating from stable to negative, 
while Standard and Poor's downgraded the sovereign rating by one notch 
to BBB^, its lowest investment grade category. This downgrade forced 
similar ratings cuts on such major Russian corporations as Gazprom, 
Rosneft, and VTB Bank. The uncertainty created by the combination of 
Russia's conduct in Ukraine--and the ongoing threat of sanctions--has 
created challenges for Russia's economic outlook, its most prominent 
companies and its economic policymakers.
    President Putin himself has said that Western sanctions imposed on 
Russia have had real impact on domestic businesses, including limiting 
access to funding for many Russian companies. As recently as this week, 
Russian Deputy Finance Minister Sergei Storchak conceded that Western 
sanctions are having a significant, though indirect, impact on the 
Russian economy. He went on to say that ``the effect of sanctions has 
intensified because the imposition of sanctions coincided with a fall 
in the growth rate of the Russian economy.''
    Indeed, we have witnessed more than $50 billion in capital flight 
this year and the IMF and Russian Central Bank project that net 
outflows will reach $100 billion for the full year. The Russian Central 
Bank has intervened heavily in order to stabilize the ruble amid 
persistent outflows. Meanwhile, an increase in risk premium caused a 
spike in borrowing costs shutting many Russian companies out of 
external debt markets. Russia's Lukoil has indicated that it will cut 
spending in order to reduce dependency on international debt markets. 
Furthermore, the bottom lines of key Russian financial institutions 
demonstrate the effects of a weakening ruble and deteriorating 
investment climate. In late May, Russia's two largest banks by assets, 
Sberbank and VTB, reported 18 and 98 percent drops in quarterly 
profits, respectively. Finally, it is important to note that despite 
the more recent recovery in asset prices, Russian asset prices continue 
to underperform relative to their emerging market peers.
    While Russian politicians project confidence in the face of 
sanctions, their government's actions show otherwise. The Russian 
Central Bank has raised key interest rates twice this year and spent 
approximately $30 billion in foreign exchange reserves since March to 
stabilize the ruble, amid heavy capital outflows in the first quarter. 
Despite these interventions, the Russian ruble has depreciated by 5 
percent since the beginning of the year. Likewise credit institutions' 
liabilities to the Central Bank of Russia have increased by over $30 
billion (25 percent) since February. President Putin admitted last 
month that the Government of Russia may need to intervene with budget 
funds to support Russia's banks.
    As a result of sanctions, the Russian Government has openly 
discussed diverting government funds to support Russian industry. 
Recently, President Putin stated that Russia needs to look into 
recapitalizing Gazprom by the amount it would cost to build 
infrastructure in the Far East. Likewise, the Russian Ministry of Trade 
and Industry has proposed an import substitution program increasing 
annual domestic volume of production by more than $890 million starting 
from 2015 in order to offset import losses. Taken as a whole, these 
measures indicate that the Russian Government is focused on short-term 
crisis fighting, which in addition to increasing the costs of Russia's 
decision to intervene in Ukraine, is costing Russia the investment 
needed to reverse Russia's long-term downward economic trends. To grow, 
Russia needs foreign direct investment and to integrate with the global 
economy. As a consequence, the isolation Russia now faces as a result 
of its actions in Ukraine will have a significant impact on Russia's 
growth prospects over the medium term.
                           support to ukraine
    In addition to our measures to isolate the Russian economy, the 
United States Government is working with the international community to 
support the Ukrainian Government in returning the country's economy to 
a solid footing. The approval on April 30 of a 2-year, $17 billion IMF 
reform program has unlocked additional bilateral and multilateral 
financial support and will set Ukraine on a path to sustainable growth. 
The IMF is at the center of a broader, $27 billion international 
support package, and is best placed to support Ukraine's implementation 
of robust and market-oriented reforms. International assistance 
totaling nearly $6 billion has been disbursed to date. The government 
successfully issued $1 billion in 5-year, U.S.-backed debt at a 
reasonable borrowing cost in mid-May. The first review of Ukraine's IMF 
program began at the end of June, and provided Ukraine fulfills its 
reform commitments, approximately $2 billion is expected to be provided 
by the IMF, World Bank, and other donors by the end of July, with 
additional resources scheduled for disbursement by the end of the year.
    Ukraine's new government has already completed key policy reforms 
that demonstrate its willingness to make the tough decisions necessary 
to restore economic stability to Ukraine, and this momentum must be 
maintained. Retail natural gas prices have been increased, a fiscally 
responsible budget has been passed, the procurement law has been 
amended to strengthen governance, and the central bank has allowed 
market forces to determine the value of the currency. Still, 
significant challenges remain, including continued implementation of 
difficult reforms by the Ukrainian Government and ensuring Ukraine has 
a stable supply of gas. At the same time, conflict in eastern Ukraine 
is taking a significant toll on Ukraine's already vulnerable economy. 
Economic activity in parts of eastern Ukraine has ground to a halt and 
the security situation is undermining confidence and international 
investment. We are working with the IMF, World Bank, and others to 
ensure Ukraine has the support it needs over the coming months.
    To complement this international financial assistance, expert 
advisors from Treasury's Office of Technical Assistance have been 
deployed to Kiev to help the Ukrainian authorities stabilize the 
financial sector and implement reforms. Treasury advisors are working 
closely with the Finance Ministry, National Bank of Ukraine, and 
Deposit Guarantee Fund to develop strategies to manage public sector 
debt, resolve failed banks, improve banking supervision, and spur 
financial intermediation.
                               conclusion
    By combining our efforts to impose financial costs on those 
threatening peace and security in Ukraine with measures to encourage 
Ukrainian economic recovery, the United States Government is working to 
contribute to the development of a strong, unified, and prosperous 
Ukraine. Furthermore, we are prepared to take additional strong 
measures to impose severe costs on Russia in defense of Ukraine's 
sovereignty and territorial integrity.

    The Chairman. Thank you.
    Secretary Chollet.

STATEMENT OF HON. DEREK CHOLLET, ASSISTANT SECRETARY OF DEFENSE 
FOR INTERNATIONAL SECURITY AFFAIRS, U.S. DEPARTMENT OF DEFENSE, 
                         WASHINGTON, DC

    Mr. Chollet. Thanks. Mr. Chairman, Ranking Member Corker, 
members of the committee, thank you for inviting me here today 
to discuss the ongoing crisis in Ukraine and how the Department 
of Defense is working to help Ukraine address its security 
needs.
    We remain deeply concerned by the security situation in 
Ukraine's east, where the Russian military remains very active 
in facilitating the movement of forces, equipment, and finances 
across the border. Additionally, Russian irregular forces and 
Russian-backed local separatists remain active inside eastern 
Ukraine, and both are supported by Russian financing. These 
actions are not consistent with Russia's pledge to stabilize 
the situation and seek a negotiated outcome.
    It is in our interest to have a Ukraine that is stable and 
secure. Across the spectrum, Ukrainian leaders have made clear 
that they want our help, and we are committed to assisting 
them, which is a message that President Obama, Vice President 
Biden, Secretaries Kerry and Hagel have made clear in their 
meetings with their Ukrainian counterparts in the past month.
    On security, we are working to support Ukraine along three 
lines of effort.
    First, we will continue to support Ukraine's urgent supply 
needs. President Obama has approved $33 million in security 
assistance for Ukraine since the beginning of the crisis. This 
is an order of magnitude beyond our assistance in previous 
years to Ukraine, and more than four times what we provided 
Ukraine last year. This assistance has started to flow. We have 
delivered 2,000 sets of body armor, first aid kits, tactical 
radios, and 5,000 uniforms. Soon, we will send night-vision 
devices, thermal imagers, EOD robots, Kevlar helmets, and 
additional radios. We are actively pursuing additional sources 
of assistance, which we will apply to Ukraine's most pressing 
needs.
    Second, beyond the immediate supply needs, the Ukrainian 
military needs support through enhanced training and exercises. 
As President Obama made clear after his meeting with President 
Poroshenko last month, we are discussing additional steps to 
help train and professionalize Ukraine's military. To aid this 
effort, U.S. European Command has established a Senior Steering 
Committee with Ukrainian counterparts to identify areas where 
we can improve our bilateral military cooperation, conduct 
assessments, and identify requirements we can address through 
training and development. And those meetings are underway in 
Kiev this week.
    Third, and perhaps most importantly, we will work with 
Ukraine on reforming and, in some cases, rebuilding its defense 
institutions. While I was in Kiev last month, meeting with 
Ukrainian Defense and National Security officials, the 
Ukrainian Defense Minister said that the biggest obstacle to 
reform is the military mind-set still largely oriented toward 
the old Soviet way of doing things. And he requested our 
assistance in reform and improving military education. To do 
so, United States defense advisors will help the Ukrainians 
develop a feasible and sustainable reform program. To get this 
started, a five-member initial scoping team visited Kiev a few 
weeks ago and met with various Ukrainian defense and security 
officials.
    Additionally, embedded United States civilian advisors in 
the Ukrainian Defense Ministry can help the government build a 
national security strategy that provides a cohesive vision for 
the Ukrainian military, border guards, national guard, and 
other security institutions.
    Another area of needed reform will be in the defense 
industry. Ukraine is endowed with an advanced defense 
industrial base, that employs more than 40,000 people, which is 
in danger of collapse due to the current reliance on the 
Russian market. Given Russia's aggressive actions in Crimea, 
Donetsk, and Lugansk, and elsewhere, the Ukrainian Government 
has understandably stopped 
all military sales to Russia. To reverse the downward trend in 
the Ukrainian defense industry, United States advisors can help 
Ukrainians develop long-term investment plans to enable them to 
attract other markets, develop long-term investment plans, and 
shift away from reliance on Russia.
    Mr. Chairman, members of this committee, the United States 
cannot achieve success in these three areas of security 
assistance by itself. We need others to join us. For example, 
NATO allies who have experienced their own challenging defense 
reforms over the past decade, such as Poland and the Baltic 
States, can provide abundant expertise on similar reforms in 
Ukraine. And we need other NATO allies to step up and help 
Ukraine security forces to continue to reform and modernize and 
professionalize over the medium to long term.
    We will also continue to rely on the leadership from 
Congress, especially in supporting the European Reassurance 
Initiative, which President Obama announced on his trip to 
Europe last month. If approved, this initiative of $1 billion 
will help the U.S. military to increase its defense presence in 
Europe and would cover enhanced training, readiness, exercises, 
and facility improvements in Europe to reassure our allies. The 
initiative would also bolster our materiel assistance to key 
partners, such as Ukraine.
    So, I look forward to working with this committee, and the 
Congress as a whole, as we seek your approval on this important 
effort. Thank you, and I look forward to your questions.
    [The prepared statement of Mr. Chollet follows:]

                  Prepared Statement of Derek Chollet

    Chairman Menendez, Ranking Member Corker, and committee members, 
thank you for inviting me to discuss the ongoing crisis in Ukraine, 
which was precipitated by Russia's occupation of Crimea and its ongoing 
destabilization campaign in eastern Ukraine. Today I will update you on 
the multiple lines of effort that the Department of Defense is pursuing 
to help Ukraine meet its immediate security needs, and also to help 
Ukraine develop a more professional and capable military for the 
future.
    We are many months into the crisis, and Russia's actions are as 
unacceptable today as they were in February. Our commander in Europe, 
General Breedlove, succinctly described Russia's posture and actions in 
a recent press conference. He said that Russian regular forces are very 
active along the border of Ukraine facilitating the movement of forces, 
equipment, and finances across the border. Russian irregular forces, 
and Russian-led and -backed local separatists, are active inside 
eastern Ukraine, and they are supported by Russian financing. These 
actions fly in the face of international commitments and standards 
governing relations among states, so we have taken concerted actions as 
a government to raise Russia's costs for these blatantly unacceptable 
actions.
    I visited Kiev just before the inauguration of Ukraine's new 
President Poroshenko in June. Across the spectrum, Ukrainian leaders 
made clear that they continue to want the U.S. Government's help, and I 
assured them that we are committed to assisting them. Ukraine matters. 
It is a European nation, bordering NATO member states. The Ukrainian 
people freely elected a new President who has pledged to fulfill their 
desire to increase cooperation with Europe both politically and 
economically, and who has just signed a trade agreement with the 
European Union to accelerate that process. Ukraine has a long history 
of security cooperation with the United States, and it has been a 
steadfast coalition partner in Afghanistan, Iraq, Kosovo, and Bosnia, 
as well as in counterpiracy operations off the Horn of Africa.
    We want Ukraine to continue on this trajectory, and to do so we're 
helping in three ways.
    First, though we have been clear that there is no military solution 
to this crisis, Ukraine has the right to restore order and stability 
within its territory through the use of its armed forces, internal 
security forces, and border guards. Before he met with Ukrainian 
President Poroshenko in June, President Obama approved an additional 
tranche of $5 million in nonlethal security assistance for Ukraine on 
June 4, and Vice President Biden announced an additional $10 million 
for assistance to the State Border Guard Service on June 7, bringing 
the total since the beginning of the crisis to $33 million currently 
being used for nonlethal security assistance.
    During the months of June and July, nonlethal assistance started to 
flow. For example:

   1,929 first aid kits were delivered to the military hospital 
        in Kharkiv, in eastern Ukraine, in late June.
   80 multiband handheld radios, including batteries, arrived 
        in Kiev in late June, as did 1,000 sleeping mats and over 5,000 
        uniform items.
   We completed delivery of 2,000 body armor vests to Ukraine 
        on July 4.

    Over the next 2 months, we will purchase and ship 150 night-vision 
devices, 150 thermal imagers, 1,000 Kevlar helmets, 5 explosive 
ordnance disposal robots, and another 96 radios.
    Second, beyond immediate needs, the Ukrainian military requires 
support through training and exercises. Ukraine has been a member of 
NATO's Partnership for Peace since 1994, and it has a long history of 
hosting bilateral exercises with the United States and multilateral 
exercises with NATO member states. But prior Ukrainian Governments, 
especially that led by former President Yanukovych, starved the 
military not only of modern equipment, but also of sufficient training. 
The new Ukrainian Government, under President Poroshenko, is clear 
about its desire for more military cooperation, including training and 
development. The U.S. European Command (USEUCOM) has established a 
senior steering committee with Ukrainian counterparts to identify areas 
where we can improve our bilateral military cooperation, conduct 
assessments, and identify requirements we can address through training 
and development.
    Third, and perhaps most importantly, we will work with Ukraine on 
reforming and, in some cases, rebuilding its defense institutions. We 
must help Ukraine spend its defense budget more wisely, plan for a new 
navy to replace the naval assets unlawfully seized by Russia, and 
expand and empower a cadre of noncommissioned officers. While I was in 
Kiev, senior Ministry of Defense officials said that the biggest 
obstacle to reform is a military mindset that is still largely oriented 
toward the old, Soviet way of doing things, and requested our 
assistance in improving military education. To do so, advisors from the 
Department of Defense, including USEUCOM, will help the Ukrainians 
develop a feasible and sustainable reform program. A five-member 
initial scoping team, composed of civilian Defense personnel and 
contracting experts, visited Kiev on June 15-19 and met with various 
Ukrainian defense and security officials. Also, embedded U.S. civilian 
advisors in the Ukrainian Defense Ministry will help the government 
build a national security strategy that provides a cohesive vision for 
the Ukrainian Armed Forces, border guards, National Guard, and other 
security institutions.
    Another area of beneficial reform will be in the defense industry. 
Ukraine is endowed with a strong and advanced defense industrial base--
employing more than 40,000 people--which is in danger of collapse due 
to its current reliance on the Russian market. Due to Russia's 
aggressive actions in Crimea, Donetsk, and Luhansk, the Ukrainian 
Government has understandably stopped all military sales to Russia. 
U.S. advisors can help them diversify this industry to attract other 
markets, develop long-term investment plans, and shift away from 
reliance on Russia.
    The United States cannot realize success in these three areas of 
security assistance by itself. We need others to join us. New NATO 
allies who have experienced their own challenging defense reforms over 
the past decade, such as Poland and the Baltic States, can provide 
abundant expertise on similar reforms for Ukraine. We will engage with 
these allies and others to build a comprehensive and multifaceted 
approach to help Ukraine defend itself adequately, and become a more 
secure and capable partner.
    Chairman Menendez, Ranking Member Corker, and committee members, we 
need Congress' help too. The administration recently announced its 
European Reassurance Initiative (ERI), which was reflected in the 
budget amendment submitted last month. If approved, this $1 billion 
initiative would help the Department increase its defense presence in 
Europe and would cover enhanced training, readiness, exercises, and 
facility improvements in Europe to reassure our allies. In addition, 
ERI funds could be used to bolster our material assistance to key 
partners such as Ukraine, so I urge congressional approval of this 
important proposal.
    Thank you for your time. I look forward to your questions.

    The Chairman. Well, thank you all.
    Let me start with you, Secretary Nuland. A month ago, 
President Obama and the G7 promised more economic sanctions if 
Putin did not stop inciting violence in eastern Ukraine. In a 
pattern that seems increasingly familiar to all of us, Putin 
made gestures that suggested the appearance of Russian 
withdrawal, while simultaneously engaging in other actions, 
such as having tanks cross the border and overseeing the cutoff 
to gas supplies, that are hostile by anyone's standard. And 
then, reading from your testimony, Russia has made too many 
commitments at the diplomatic table over the past 4 months that 
have been rendered hollow by the weapons, cash, and fighters 
that continue to flow across the border to fuel the fight in 
eastern Ukraine. And that element was also echoed by Secretary 
Chollet.
    So, I look at what the standards were, which was calling on 
Russia to end all support for separatists to control the 
border, to help establish an effective OSCE monitoring regime, 
to use its influence with separatists to return the three 
border checkpoints to Ukrainian authorities, to release the 
hostages they hold, to launch substantial negotiations on the 
implementation of President Poroshenko's peace plan. And yet I 
see no advance in any of those standards.
    So, what are we waiting for?
    Ms. Nuland. Thank you, Chairman.
    Well, I certainly do not disagree with your assessment that 
we have not seen progress on any of the areas that I outlined 
or, indeed, that the G7 outlined or that the EU Council 
outlined. As I said, when President Poroshenko came into 
office, he came in with his broad and deep peace plan and was 
committed to testing it. His first aspiration was to test it in 
concert with separatists. So, he first wanted to try to 
negotiate a cease-fire that was bilateral. When, after a couple 
of weeks of effort, that failed, he decided to initiate his 
cease-fire unilaterally. And that was a test that he asked the 
United States and Europe to support, to see whether separatists 
would meet him halfway, to see whether, in fact, Russia would 
meet him halfway after the meeting at Normandy, brokered by 
Chancellor Merkel, President Hollande, between President Putin 
and President Poroshenko. As you have noted--and as I noted in 
my testimony--that cease-fire came and went, and, in the 
process, Ukraine lost territory to separatists, it lost border 
control posts, and the weapons continued to flow.
    The Europeans continue to try to bring the sides together 
to see if a cease-fire can be reestablished. They have failed, 
over the last week, to do that, because separatists have 
refused to meet in any location that is safe.
    So, we are continuing to consult with our European allies. 
The President, the Secretary, all of us, have been in constant 
day-by-day discussion with the Europeans to assess. And I think 
our analysis is the same, that we have not seen progress.
    So, in that context, we are continuing to prepare the next 
round of sanctions. As we have said repeatedly, and as the 
President has said, these sanctions will be more effective, 
they will be stronger, if the United States and Europe work 
together. And we----
    The Chairman. But, it begs----
    Ms. Nuland [continuing]. Are working on those.
    The Chairman. I appreciate your answer, and I have let you 
go, to try to make it as substantive as possible, but it begs 
the question, what are we waiting for? I understand all of 
that. I think the Ukrainian Government has bent over backward 
to try to get to a peaceful resolution that will get the 
Russians to ultimately go along. But, all the Russians call for 
are cease-fires, and then they take advantage of it, and they 
do nothing in return.
    What is this about a Ukrainian fighter pilot turning up in 
Russian jails? How does Russia justify having a Ukrainian Armed 
Force member acquired by separatists ending up in a Russian 
jail? How is that an example of trying to resolve the problem?
    Ms. Nuland. Well, thank you for citing that case, which is 
clearly a violation of international law and human rights. This 
is a Ukrainian servicemember who was taken hostage on the 
battlefield by separatists about a month ago, and she has now 
turned up, as you said, in a Russian prison, clearly making 
obvious that link between Russia and separatists.
    Senator, we are continuing the conversation with the 
Europeans about the right moment for sanctions as they prepare 
for the last meeting of European heads before the summer break, 
which is on July 16.
    The Chairman. So, if, per chance, on July 16, the European 
Union heads do not come to a conclusion and move forward on 
sanctions, which is only about less than a week away or so, 
then will we have the summer lapse, and Putin will know that 
there are no consequences, and the United States will stay on 
the sidelines, waiting for the Europeans? Is that something 
that we could actually expect?
    Ms. Nuland. Chairman, as I said, our goal is to act in 
concert with Europe, but the President has always made clear 
that, if necessary, he will act on our own.
    The Chairman. Let me ask you this. We see the Russians 
creating a cessation of oil deliveries and gas deliveries to 
the Ukraine. And I would love to hear what that looks like, 
going into the fall, if it continues, which will not be too far 
in the distance. We have American companies helping Russia 
learn how to drill offshore in the Arctic and exploit their 
shale resources. Now, I do not think we should necessarily 
create a Russian shale revolution and thereby strengthen 
Russia's energy weapon, which they have shown clearly that they 
are willing to use, and threaten others in Europe to do. Where 
is the administration on that issue?
    Ms. Nuland. Chairman, we have made clear to U.S. business 
the risks of continuing to provide high-tech investment in the 
current climate. We have also, in the context of our sanctions 
work internally and with the Europeans, focused intensively on 
what we might do in the next round with regard to high-
technology investment. You are not wrong that Russia depends on 
outside investment in order to take its energy exports to the 
next level and to----
    The Chairman. You know, Russia is basically an extracting 
country. It does not create too much more. And that is the 
biggest driver of its economy. It seems to me that if the 
Russians have shown themselves willing to use energy as a 
weapon, which they have--Ukraine is the perfect example of it, 
but even the European reticence is, in large part, about energy 
questions--then, at the 
end of the day, why would the United States, with all of its 
national interests and national security interests, allow 
entities to ultimately help the Russians further develop their 
energy resources so that they would have more energy to be able 
to use as a weapon? Is anybody thinking about that?
    Ms. Nuland. We are thinking about that, Chairman. This is 
in the category of a set of measures one could take that would 
only be effective, in terms of the goal that you seek, if they 
were done in concert with Europe, because, while the United 
States has this technology, so do some key European companies, 
as well, and we would not want to be in a situation of denying 
our companies and having Europeans backfill.
    The Chairman. But, I think there is----
    Ms. Nuland. So, we are having a conversation----
    The Chairman [continuing]. Right now----
    Ms. Nuland [continuing]. With Europe about it.
    The Chairman. And I doubt that there is anyone in the world 
as advanced as the United States on the specific technologies 
as it relates to shale exploration. It seems to me that we 
fight with one hand behind our back, maybe two, with a leader 
who has no limitations, from what I can gather, other than when 
he is faced with an equivalent countervailing force that is 
either military--and which we are not talking about, in this 
case--or economic. And so I do not get it. I do not know how 
much longer there are going to be those of us willing to wait 
before we act independently.
    Senator Corker.
    Senator Corker. Thank you, Mr. Chairman. And some of your 
questions really are the kind of questions I want to pursue.
    And, Secretary Nuland, I know that you do a good job of 
staying in touch with us, and I appreciate that. And yet, 
seriously, I sometimes wonder whether Foreign Service officers 
feel like resigning when you are put out there to continue to 
sort of sound tough, but know that nothing is really going to 
happen.
    I am just curious, knowing that you are serving in the 
State Department and have responsibilities, if you, to the 
degree that you can, would tell us what really is happening 
here with the sanctions? The fact is, everything we said we 
were going to put sanctions in place for, relative to Russian 
actions, has occurred. Every single thing. They have never 
responded to the threats, the hollow threats that we put out 
there. What is really driving our sort of feckless sanctions 
policy right now? Is it the internal debate in the 
administration between the economic folks, who are so worried 
about the elections this fall that they do not want to do 
anything that might blow back on us economically, and the 
security folks, who are concerned about that very bitter peace 
that we are basically establishing right now with Russia? Is 
that what is driving it? Or is it the fact that we know Europe 
is never going to come to the table?
    What is keeping us from doing some of the things that the 
chairman has mentioned, that I have talked to you about on the 
phone? What is keeping us from going ahead and putting 
sanctions in place, when we know that there is Russian military 
equipment on the ground in eastern Ukraine? You all know that, 
and have said it publicly. They are funding separatists. What 
else is it that we need to see happen and know happen before we 
actually put biting sanctions in place?
    Ms. Nuland. Well, first of all, Chairman, just to say, it 
is my great honor to serve in this position at this very vital 
moment.
    Senator Corker. I know it has to be very frustrating, 
though, to continue to wake up in the mornings and look in the 
mirror and practice talking tough, but know that nothing is 
going to happen. I really respect your service. I would just 
love for you to share with me why nothing is happening.
    Ms. Nuland. First, Ranking Member Corker, I think it is 
important to go back and look at the last few months and take 
some appropriate look at what might have happened, had we not 
had the rounds of sanctions that we have had.
    Senator Corker. I do not want to hear that. I read the 
papers, and I talk to you. Tell me what the rub is within the 
administration that is keeping it continuing to lay out 
redlines and make threats, but not act, continuing to undermine 
our credibility, continuing to move toward this bitter peace I 
alluded to. Tell me what is keeping us from taking action today 
like putting military equipment on the ground. We know they are 
funding separatists. We know they are playing this duplicitous 
game of escalation and de-escalation. Why are we not acting?
    Ms. Nuland. Again, as I said, with regard to this next 
round, it was the desire, first, of President Poroshenko, to 
test his peace plan. He has now done that. We are quite clear 
that we have not seen the results that we are seeking from 
Russia, so we are now talking to the Europeans about when it is 
appropriate to move together. As I said----
    Senator Corker. When is it appropriate?
    Ms. Nuland. As I said, their last heads meeting of the 
summer is next week. It is on July 16. And they very much--and 
we very much--prefer to move together.
    Senator Corker. Yes.
    Ms. Nuland. So, we are looking at the evidence, and we are 
building the package as we move forward.
    Senator Corker. You remember you told me, that the last 
meeting we were going to have was the end of June. And that is 
when we were going to take action. And I know that everybody on 
this panel has to be incredibly frustrated. Again, so we can 
understand the dynamic within the White House, within the 
administration, I just wish that you would explain to me what 
it is, internally, that is keeping us from going ahead and 
putting sanctions in place, when we know exactly what is 
happening.
    Ms. Nuland. I think the primary desire, at the moment, is 
to stay tightly coordinated with Europe as we move forward, 
because the sanctions will be stronger if we move together.
    But, Chairman, if I might, for a minute, just remind that 
we--you know, there was a moment, where we had 40,000 Russian 
troops ringing the border. We threatened sanctions, and those 
troops moved back----
    Senator Corker. That is absolutely untrue. That is 
absolutely untrue. They stayed on the border----
    Ms. Nuland. Some of them----
    Senator Corker [continuing]. Weeks and weeks and weeks 
afterward. And they kept saying they were moving away, and our 
NATO friends kept saying they are not moving away. That is 
absolutely not true, what you just said.
    Ms. Nuland. There was a moment when we had 40,000 combat 
units ready to move. A lot of them moved back, but you are not 
wrong that we have a significant number returned. There was a 
time when we thought we would not have an election in Ukraine. 
And it was the solidarity between the United States and Europe, 
including the threat of sanctions, that helped preserve the 
space for those elections.
    So, we have, when we work together with Europe, been able 
to provide time and space for Ukraine to recover. We need to, 
to the extent that we can, continue to work with Europe, 
because that will make this policy as effective as possible.
    Senator Corker. I am embarrassed for us. And I just wish 
the administration would quit saying publicly, through you and 
others, the things that are being said, when we know that we 
are not going to act. We do not act.
    Secretary Glaser, you talk about the damage we have done to 
the economy. I just had someone look--and maybe we read the 
chart wrong--and I just looked at it briefly, and I apologize 
for not having done it an hour or so ago--but, the Russian 
stock market is up 22 percent since March. Whenever I talk to 
people at the White House, they tell me how damaging this has 
been to the Russian economy, and then I keep citing stats that 
point to something very, very different.
    Am I correct that the Russian stock market is up 22 percent 
since March? Am I reading the chart wrong?
    Mr. Glaser. The Russian stock market is up. I do not know 
if that is the exact right number, but I am sure that is 
correct.
    Senator Corker. Okay.
    Mr. Glaser. But----
    Senator Corker. So, just out of curiosity--I know there are 
a few oligarchs, that probably are having some unpleasant 
travel experiences and maybe having some assets frozen. But, 
how is this affecting Putin's calculation, when the economy is 
booming? Because I guess people around the world realize that 
our threats are hollow, that we are never going to do anything. 
Germany sees itself as a bridge between us and Russia. Chairman 
and I were at a dinner one night, where that was clearly 
pointed out. They are not going to take action. So, how can you 
say that the sanctions that we have put in place already have 
had any effect whatsoever on Russian behavior?
    Mr. Glaser. Well, thank you for the question, Mr. Senator.
    I do not think that short-term gains in the Russian stock 
market counterbalance the long-term real damage that we have 
done, and are continuing to do, to the Russian economy. That is 
been recognized by the Russian Government, as I note in my 
testimony. It is recognized by foreign investors, as 
demonstrated by the fact that Russian businesses, Russians 
banks, are having a hard time raising capital in international 
capital markets. It is recognized by the Russian people, 
themselves, as reflected by the $50 billion in capital flight 
we have seen already, estimated to be at $100 billion by the 
end of the year. So, that is the Russian Government, the 
Russian people, and international investors, who all recognize 
that the Russian economy has been severely damaged, both by 
Russian mismanagement and by our sanctions and threat of future 
sanctions.
    So, I do think that we could point to real impact that we 
have had. And I think it is a fair question, At what point does 
this start to impact Russian strategic calculations? And you 
are absolutely correct. I do think that, at this point, as 
Toria said, we have had some deterrent impact on Russia, 
particularly in terms of tactics. But, it is clear to all of us 
that, as a broad strategic matter, their strategy remains the 
same. And that is why, as Toria said, we are working so hard 
internally and working so hard with our friends and partners in 
Europe and in the G7 to make sure that, when the time comes, we 
have a very strong package of measures. And I am quite 
confident that, at that time, we will have a strong package of 
measures, and it will do severe damage to the Russian economy.
    Senator Corker. Mr. Chairman, thank you for the time.
    I just want to close by saying that, again, I respect each 
of your service to our country. I know that each of you have to 
be somewhat disappointed in the actions that have not been 
taken.
    And, Secretary Chollet, I mean, $33 million in assistance 
to the Ukrainian military, I think that is nice. We still have 
not done the things that they have really asked us to do.
    And I would just say, to Secretary Glaser, the damage you 
are talking about that the Russian economy will see, I think 
our country acting like such a paper tiger to the world on this 
and so many other fronts is doing incredible long-term damage 
to our Nation. And I do hope, at some point, the administration 
will actually follow through on the things that it continues to 
tout publicly.
    Thank you, Mr. Chairman.
    The Chairman. Senator Shaheen.
    Senator Shaheen. Thank you, Mr. Chairman.
    Thank you all for being here.
    Secretary Chollet, there were a number of reports over the 
weekend about successes of the Ukrainian military. And I wonder 
if you could talk a little bit about how substantive we think 
those successes were, what we attribute those to, and what 
response we are seeing out of Russia.
    Mr. Chollet. Thanks, Senator.
    You are absolutely right, there have been, over the last 4 
or 5 days, some significant successes by the Ukrainian military 
in the east. A major city, Slovyansk, was liberated and is in 
control now of the Ukrainians. There are several other key 
cities that are now largely surrounded by the Ukrainian 
military. We are watching that situation very closely.
    I think there is probably not one single answer to why we 
have seen the tide turn, at least for the moment. And I want to 
stress that we are not--this is not over yet. So, although the 
trendline is good for now, we need to watch this very closely. 
It could be that the cease-fire period allowed the Ukrainian 
military to regroup, orient itself. As you have seen, President 
Poroshenko has been very active in the planning and the 
leadership of this. He was, just yesterday, dressed in military 
fatigues in the field, talking to his troops and his generals.
    But also, I think you can see that, although there is a 
significant Russian presence on the border, that has been 
reduced. We are still seeing weapons appear on one side of the 
border, and then mysteriously appear on the other side of the 
border, that are clearly Russian origin.
    But, so, I think it is a combination of a little bit of a 
lessening of support by Russia, but then also an opportunity 
for the Ukrainians to regroup after this very quickly cascading 
crisis over the previous months. The cease-fire, I think 
helped.
    Senator Shaheen. Well, again, if I could ask you to answer 
on what do we think--why do we think Russia has pulled back 
somewhat, and what do we think their continued response will be 
if the Ukrainian military continues to be successful?
    Mr. Chollet. So, on why Russia has pulled back, I do think 
the sanctions have helped. I think this was--they did have an 
effect, and they certainly changed Putin's calculation on how 
much support he would be willing to give and how deep he would 
get into this. The Ukrainians have also been able to improve 
their border security. They have said that their border is 
sealed along the east. That has been a very porous border. When 
I was there, a month ago, and was briefed by the head of the 
Border Security, it was described how, in many cases, it is not 
even demarcated, the border between Ukraine and Russia, so that 
I think that has helped.
    I think we have to be very mindful of what the Russian 
response could be, and that is why we are watching this so 
closely. It is a very dangerous situation. And, of course, the 
Ukrainians need to be vigilant, themselves, on how they handle 
the situation, in terms of civilian casualties in the 
surrounding of these cities. And they have stressed to us that 
they are going to be very careful about how they handle this 
situation.
    But, I think we have to really expect the worst, in terms 
of Russian response; and that is why we are watching it so 
closely.
    Senator Shaheen. Secretary Nuland, can I ask you to respond 
to that, too? Assuming that the Ukrainians continue to be 
successful in throwing the rebels out of the cities that they 
are holding and actually forcing them, many of whom are 
Russian, back into Russia, what do we think Putin's response 
will be? And are we concerned that their success means that 
Russia will be more aggressive in coming into eastern Ukraine?
    Ms. Nuland. Again, Senator, I think it depends on how Putin 
ultimately calculates his interests. He has other ways to 
create pressure and destabilization on Ukraine, including the 
energy card and the economic card. But, our hope would be that, 
as the Ukrainians, as Assistant Secretary Chollet said, harden 
the border and make it more difficult to covertly support the 
separatists, that the choices become more stark for Russia, at 
least on the military side.
    Another factor that I think has contributed to the 
Ukrainian success is that, in the towns that separatists have 
held, Slovyansk and Kramatorsk before they were liberated, 
human rights abuses, looting, abuse of the civilian population 
have gravely turned those in the east who may have had affinity 
toward Russia, who may have had affinity toward the 
separatists' agenda at the beginning, firmly against them. And 
the Ukrainian military has benefited from improved intelligence 
from the population that wants these guys gone.
    So, it is a matter of the Ukrainians continuing to deploy 
careful, judicious tactics to make a success and restore good 
livelihood in places like Kramatorsk and Slovyansk, that are 
free, and make them an example in Donetsk, but also continuing 
to raise the cost of military intervention by raising that 
border, by making it clear that, in the international 
community, we will sanction against more military--more 
transfers of heavy metal and those kinds of things.
    Senator Shaheen. And are we seeing Poroshenko being willing 
to address corruption within the country? And what kinds of 
concrete steps has he taken and has he committed to take?
    Ms. Nuland. The government, just last week, published its 
3-year anticorruption plan and its 6-month action plan. As you 
know, Senator, they have already started to put a legislative 
base in place through the Rada that was part of the IMF 
conditionality. There is more legislative base required as part 
of their association with the European Union. The key focuses 
of the 6-month action plan are preventing conflict of interest 
for public servants, strengthening punishment for corruption, 
judicial reform, going after some of the most corrupt folks in 
the system, e-governance, creating transparency, those kinds of 
things. And we are committing significant U.S. assistance to 
help in the anticorruption effort, as is the European Union. 
But, we will have to judge them by how they implement. It is a 
very difficult, pernicious problem throughout society, as you 
know.
    Senator Shaheen. And is that an agenda that is helpful as 
they are taking back cities in eastern Ukraine, to be able to 
show very specific actions? And are they willing to do that? 
And do they have support from local officials in those 
communities?
    Ms. Nuland. It was the number one plank on which President 
Poroshenko ran for office. Anticorruption, clean government, 
clean Ukraine, Europe, and peace--those were his three 
platforms. So, they have now got to prove it on all sides.
    In eastern Ukraine, the number one concern is economic 
opportunity and the fact that it is been, essentially, a rust-
belt, heavy-industry economy. So, as the Ukrainian Government 
takes back parts of eastern Ukraine, they are reaching out to 
us, they are reaching out to the European Union, asking for 
support for microprojects and other things that will quickly 
jump-start the economy and, over the longer term, 
diversification of that economy away from heavy industry and 
extractive, and into things that will bring innovation and 
technology and opportunity to the Donbas.
    Senator Shaheen. My time is up. Thank you.
    I would suggest that energy efficiency, as they are looking 
at projects, is one great opportunity that they should take 
advantage of.
    The Chairman. Senator Flake.
    Senator Flake. Thank you.
    Secretary Nuland, I think we are all buoyed by what we have 
heard in the last couple of weeks, particularly the military 
successes, and how we attribute that. I think we are all 
surprised that the Ukrainian military is showing more strength 
then they seemed to have before. But also, I think a lot of it 
is the fact that the elections were good, went well, the 
government has legitimacy, people have some hope, in the east 
at least. With regard to further action by the Russians and 
their calculations and our own sanctions, I could not agree 
more that the sanctions are more effective, I have always felt, 
in other areas of the world as well, when they are 
multilateral, not unilateral. And it is far more effective if 
we work hand in glove with Europe.
    Say the same situation that we have today, roughly, 
persists, that Russia kind of plays this game, maybe the 
Ukrainian military is successful on and off, taking another 
city or pushing back a little. I just want your honest 
assessment of where Europe is, here. Will they move forward, 
imposing tougher sanctions, if we have anything approximating 
the status quo in Ukraine?
    Ms. Nuland. It is my judgment, based on hours and hours and 
hours of consultation with Europeans and trips across some 20 
of the 28 European Union countries, that, if Russia does not 
stop rearming separatists, does not stop its financial support, 
that we will have European support for another round of 
sanctions. It may not be completely parallel to everything that 
we want to do, but this is a process moving forward. There is 
no one in Europe who thinks that what is happening in eastern 
Ukraine is in the EU's interest or Europe's interest, and 
everybody wants to get back to a place where there are 
civilized relations between Russia and Ukraine. So, we have to 
make it cost if Putin continues to go down that road.
    Senator Flake. Can you describe, outside of sanctions, what 
efforts are being made to push back on Russia's failure to--
pull back, I should say, further than they have? Aside from 
sanctions, what efforts is the State Department undertaking?
    Ms. Nuland. We have also, working with Europe, put in place 
an intensive campaign of diplomatic and political and, to some 
extent, economic isolation. For example, as you know, the 
United States has ceased virtually all military-to-military 
cooperation with Russia. We have ceased virtually all economic 
cooperation at the government level--high technology, all that 
kind of thing. The Europeans have largely matched that. You 
will recall that we downgraded the G8 back to a G7, and had it 
in Brussels without the Russians. None of us, with the 
exception of Normandy and a couple of other things, have been 
welcoming senior-level Russians in our capitals. We have been 
restricting the work we do together to those things that are 
clearly in our global shared interest.
    Senator Flake. Mr. Chollet, the Ukrainian military benefits 
from--I guess it is the Partners for Peace Program with NATO. 
Can you describe that? How is that helping them prepare and 
grow and have the capabilities that they need?
    Mr. Chollet. Absolutely. It has helped them over 20 years 
that they have been a NATO partner, and they have operated with 
United States and NATO forces in places like Kosovo and Iraq 
and Afghanistan still today. And so, there is no doubt that 
their partnership with NATO has helped them in the course of 
this crisis. The fact that they were a partner with NATO has 
helped us diplomatically and militarily, in terms of supporting 
Ukraine in various meetings in Brussels of both Secretary Kerry 
and Secretary Hagel, around the NATO Ukraine Council. So, there 
is a lot of support that they get, and there is practical help 
that they get. And NATO--in addition to United States bilateral 
efforts, NATO is also seeking ways to continue to help Ukraine 
reform and further professionalize its military.
    Senator Flake. Is the Ukrainian military and the government 
satisfied with our efforts to bolster the military there?
    Mr. Chollet. In my talks, a month ago, with the then-
Ukrainian Defense Minister--we have a new Defense Minister--
but, as well as the National Security Advisor, we talked a lot 
about the support that they were looking for, and some of which 
is support that has been delivered since my visit, particularly 
in the body armor, which they were very focused on. There are 
other items that are on the way. We have pledged to do--we can 
pay for--things like night vision, and border security is 
something that they are very, very focused on. They have a very 
long list of asks, as you have probably seen. And part of the 
point of the discussions that I have had, that Secretary Hagel 
has had, that our European Command team is having today in 
Kiev, is to talk with them in more detail about further needs 
that they have.
    Senator Flake. All right.
    Thank you, Mr. Chairman.
    The Chairman. Senator Murphy.
    Senator Murphy. Thank you very much, Mr. Chairman.
    You know, this is not the cold war. The world does not 
revolve around who is with the United States and who is with 
Russia any longer. There are paradigms that matter a lot more 
to us than that. But, it has similarities, in the sense that 
this is a long-term engagement in which we are creating a 
contrast with Russia for the countries that lie along the 
faultline between East and West. And what matters most, really, 
is the work that we do over years and decades to rebuild the 
economic and military capacity of those countries so that they 
truly have a choice.
    I join with Senator Corker in lacking envy for the position 
that you are in, but for different reasons. I think we want to 
be careful not to be too responsive in the short run so as to 
pollute the efforts that we need to make in coordination with 
the Europeans to win the long-term game. The Russians used to 
be the best at playing the long game; that is how they expelled 
Napoleon from Russian territory. Today, they are all about 
short-term return. We now have the advantage, hopefully, of 
seeing the long-term game.
    However, Secretary Nuland, I want to challenge a little bit 
of your optimism about where Europe is heading. I agree with 
Senator Flake that we have to do this, to the extent possible, 
in coordination with Europe. But, they seem to be moving 
backward in some ways. The French are arming the Russians. 
There are about a half-dozen EU countries now that are 
considering building the South Stream Pipeline even though it 
contravenes the third energy package directives out of the EU. 
I think that further complicates your work. It is more the 
reason why I am not envious of the position you are in, because 
I think that you are working with a continent in which they 
fundamentally disagree as to what kind of existential threat 
Russian aggression presents them. We tell them that they have 
to be serious about this, and they turn around and have a very 
different view.
    So, am I wrong to think that, in some ways, Europe is 
moving in the wrong direction rather than, in your estimation, 
kind of holding a neutral position, pending new developments?
    Ms. Nuland. Senator, as you know, because you have traveled 
to a very large number of the countries under my 
responsibility, there are lots of different views and lots of 
different situations within Europe, in terms of their historic 
structural dependency on Russia. What we are trying to do in 
the conversation is make the point that you have made, that 
everything is connected to everything, that what we offer is a 
democratic free-market model, and that is what we need to 
support in Ukraine, in Moldova, in Georgia.
    On things like South Stream, you made a good impact when 
you were in Bulgaria, and that was very important for U.S. 
diplomacy. I would, though, give a shout-out also to the EU, 
which has suspended support for South Stream until it can 
further evaluate the larger dependency impact of that project. 
And we are working intensively with the European Union on the 
larger issue--and with the nation-states--of energy 
diversification, giving them other options--interconnectors, 
LNG, other sources of energy to reduce their dependence--major 
line of effort of what we are involved with.
    So, I think it is an issue of continuing to talk to the 
Europeans about our larger strategic interest of creating less 
dependency on countries that are autocratic and countries that 
use trade as a weapon and countries that use energy as a 
weapon, and more of a vibrant market set of principles within 
Europe.
    Senator Murphy. My default is to do this in concert with 
the Europeans, but when we were in Bulgaria, we did see the 
effect of unilateral United States sanctions. We sanctioned a 
Russian individual, Timchenko, who was potentially going to be 
connected to the construction of the South Stream Pipeline into 
Bulgaria. I am not exactly sure why Bulgaria decided to halt 
construction, but there is a lot of speculation that part of it 
was that they were worried about the consequences of doing 
business with an individual who was sanctioned unilaterally by 
the United States.
    So, maybe a question to you, Mr. Glaser. As you think about 
the impact of unilateral sanctions, there certainly seems to be 
some evidence that, if the Europeans are not willing to move 
with us, that there is some impact when the United States acts 
alone.
    Mr. Glaser. Absolutely, Mr. Senator. And, as Assistant 
Secretary Nuland said, President Obama has repeatedly 
emphasized that we will be prepared to act alone if we need to 
act alone. And, you are right, the United States plays a 
pivotal role in the international economy, we play a pivotal 
role in the international financial system, and that does give 
us power, and it gives us leverage. And it is leverage that we 
have been using, as you point out, Mr. Senator, in the case of 
Russia, frankly, through many of our sanctions programs across 
a wide range of issues. We have repeatedly shown that, when we 
act alone, we can act in a meaningful way and we can have real 
consequences, as I tried to outline in my testimony.
    All that said, as you point out, it is obviously the case 
that we will be more effective and more powerful, both 
politically and as a practical matter, if we move forward with 
the European Union, if we move forward with the G7. So, I do 
think that the time spent trying to put all that together is 
time well spent.
    Senator Murphy. And listen, by the way, we have a lot of 
other irons in the fire when it comes to the work that the 
State Department is doing with Europe, some that actually 
matter more to United States national security interests than 
Ukraine. For instance, the Iranian nuclear negotiations.
    We had a great hearing yesterday, Secretary Nuland, on 
European energy security. And thank you for sending your Deputy 
to join us. Last question, for you: There was some dispute 
amongst our second panel as to who benefits and who is hurt by 
a continued dispute over gas supply from Russia into Ukraine 
through to Europe. Some think that that will ultimately hurt 
Ukraine, because they will be seen as having to make a choice 
between their own citizens and passing along the gas to Europe. 
Others thought that maybe that would move Europe more quickly 
to energy independence if they continue to see the downside of 
reliance on transit through Ukraine. What is your guess on who 
stands to lose the most from a prolonged dispute over gas 
transit through Ukraine?
    Ms. Nuland. I would say, in the short run, both Russia and 
Ukraine lose, because they do not have other options than to 
deal with each other. And Ukraine, as you know, makes valuable 
revenue by being a transit country. Over time, Ukraine, 
obviously, has to focus more effort, and that is part of the 
assistance that we are providing on diversifying, including 
diversifying as a transit hub. Does not just have to be a 
transit hub for Russia; it can also, through reverse flow, be a 
transit hub into other countries from Europe, if we can 
energize the market.
    But, obviously, the best outcome will be if--with the 
European Union's help and European Commissioner Ettinger, as 
you know, is trying to midwife negotiations between Russia and 
Ukraine--if they can come to an agreement on a fair European 
market price in stable conditions for the next year, year and a 
half, and demonstrate to the world that they are both reliable 
in this regard--but, as you know, Russia has not been willing, 
as yet, to guarantee a year-long price to Ukraine.
    The Chairman. Senator Rubio.
    Senator Rubio. Thank you, Mr. Chairman.
    Thank you all for being here. I know you have a difficult 
job.
    I wanted to, Secretary Nuland, focus on a bill that has 
been filed in the Senate that Senator Corker's taken the lead 
on. It is called the Russian Aggression Prevention Act of 2014. 
And I was still hopeful that we can get the administration's 
support. Let me give you the thinking behind it. First, I am 
going to describe kind of how I view the situation. I would 
love to have your input on it.
    But, it seems to me that what Putin is playing, here, is a 
very careful game. His ultimate goal, of course--and I do not 
think you would disagree with this--is, he wants to coerce 
Ukraine and Kiev into an agreement that guarantees Russian 
influence over Ukraine's foreign policy. So, they have a two-
pronged plan to do this. On the one hand, they provide support 
for separatists. In fact, I have seen, just in the last 48 
hours, open-source reporting of evidence that they are making 
significant transfers again of heavy weapons to separatists in 
eastern Ukraine, such as tanks and armored combat vehicles. And 
there are signs that they intend to do more of that.
    At the same time, they are also keeping alive the threat of 
military intervention. They have already created in their 
minds, the rhetorical groundwork for that sort of intervention, 
for humanitarian reasons that they have made up, but there are 
now also open-source implications that they are beginning to 
redeploy military units along the northeastern Ukrainian border 
for the first time since the May withdrawal of forces. And that 
includes armored vehicles, artillery, air defense units. My 
sense is that, given the recent offensive gains made by Kiev, 
the threat of military intervention will rise again.
    The flip side of it is, they play this very careful game 
of, you know, this public role that they now have of calling 
for a cease-fire so they can appear like they are the mediators 
and Kiev is the aggressor. Up until now, they have actually, I 
think, quite frankly, played that game fairly well. For 
example, when Putin asked that the force of authorization--the 
use-of-force authorization be lifted, immediately thereafter, 
the EU Foreign Ministers decided not to impose additional 
sanctions. And, by the way, I think this is part of a broader 
strategy that they have of cutting into Western unity on the 
idea of new sanctions.
    But, I also think--this is my guess, here, but I would be 
curious to your input on it--that there is probably some 
serious divisions in Moscow about the way forward. On the one 
hand, you have got these hardliners, of which Putin may be one 
of them, that want to see a tougher stance. And you probably 
have the separatists, themselves, feeling like, as much as 
Moscow has done, it should be more. On the other hand, you 
probably have a bunch of elitists in the government in Russia 
that worry about the broader implication of more sanctions.
    One example, especially in the energy sector, is that Asia 
is going to soon overtake Europe as Russia's leading export 
market, especially after this latest deal. But, they are going 
to really struggle, I believe, to meet their demands and the 
commitments that they have made. Sanctions have made it harder 
for them to access foreign financing and Western technology. 
For example, one of the ways they choose to--they plan to meet 
their commitments to China is in the eastern Siberia fields 
that they intend to use, and--but, this field is going to be 
harder to develop than most others, because they have high 
levels of deposits of helium and so forth. It is similar to a 
challenge they are already facing off the coast of--I think it 
is the--am I pronouncing it right?--the Sakhalin Islands, where 
they are having--I think they are 10 years off base, in terms 
of doing that. And China, by the way, knows this. I would--
again, I do not know, and they obviously have not shown me the 
deal. But, I would bet you that, in the deal that they have 
done with China, the Bank of China has probably reserved the 
right to revoke lines of credit if Russian companies cannot 
access credit or cannot access the technology because of 
broader Western sanctions.
    So, if we know this is the game that they are playing, and 
we know this is the balance they are going through in deciding 
what to do next, why would we not just put in place now, 
through legislation, very specific consequences for what will 
happen if, in fact, they move forward? In essence, why do we 
not--instead of leaving it an open question of what might 
happen, via the United States if Russia moves forward with 
military intervention or continues to arm these separatists, 
why not just put specifically in writing what that will be, 
including specifically, as I outlined, the access to advanced 
United States oil and gas technologies, so that as they are 
having this debate in Moscow, they do not have to guess or have 
conjecture about what it would mean, but they will know for a 
fact what it would mean if they continue? And I believe this 
would also have an impact on China and other Asian countries 
who are trying to cut deals or figure out how to access more 
Russian energy. Why not just put that in place in writing now 
so that it is clear what the consequences will be for them to 
continue on the course they are on?
    Ms. Nuland. Senator, thank you for that.
    Let me say that we have been absolutely clear in our 
diplomat conversation, and quite specific, including at the 
level of the President in his conversations with President 
Putin, about the kinds of additional sanctions that we are 
considering, including in the high-technology area.
    As I said before you came in, we are also working 
intensively with Europe on these kinds of measures, because it 
is not just American companies that have this technology that 
Russia needs, so do European companies. So, if we move in the 
direction of those kinds of sanctions, they will be stronger 
and more effective and nonpunitive, vis-a-vis our companies, if 
we do it together with Europe. So, it is very much on the 
docket, it is very much in the conversation with Russians and 
with the European Union, as the kind of thing that we are 
looking at moving forward.
    Senator Rubio. But--so, your answer has two aspects to it. 
The first is, if we go on our own, if we do this by ourselves, 
it may undermine the Western unity that we seek, in terms of 
other countries in the region that also have similar 
technologies they can provide.
    Ms. Nuland. Yes. On the one hand, if we deny U.S. companies 
the opportunity to invest, but European companies continue to 
invest, then we not only have an ineffective sanction, we 
have----
    Senator Rubio. No, no, I understand that that is what 
happens.
    Ms. Nuland. Right.
    Senator Rubio. It would be ineffective. But, is the concern 
that, if we act alone, if we just put this in legislation 
alone, without working with them, that it would somehow make 
them less likely to join us in that endeavor?
    Ms. Nuland. Senator, as I have made clear to the chairman 
and to the ranking member, I think, as an administration, we 
are open to working with you on a bipartisan piece of 
legislation in this regard, but we need to make sure that, if 
we go in this direction, that whatever we put forward, we can 
implement, that it does not disadvantage United States 
companies, vis-a-vis others, that it will be effective on 
Russia----
    Senator Rubio. What do you mean ``disadvantage U.S. 
companies''?
    Ms. Nuland. As I said, that if we----
    Senator Rubio. Because that sounds like you are saying, 
``Well, we are not going to--we do not want to sell you 
technology, but if other people are selling you technology, 
then we might as well make some money on it, too.''
    Ms. Nuland. No. My point is that if we were to move forward 
with some kind of work together on bipartisan sanctions 
legislation, we would want to make sure that whatever we had in 
that bill, we could implement together with Europe and/or we 
would not put ourselves in the position of hurting the American 
economy without hurting the Russian economy.
    Senator Rubio. Well, I guess I would just close by saying 
that my view on it--and I hope I can convince others of this, 
as well--is that, when the United States is specific--if we 
specifically put out there, in legislation--of course it would 
have to be bipartisan to pass in the Senate--if we specifically 
make clear, ``This is what will happen if you continue to do 
this or if you do this,'' then it is no longer just Secretary 
Kerry, you know, on the 26th of June, saying, ``You should 
disarm separatists, or else.'' It is actually in place and will 
happen. And I think that sort of American leadership will, in 
fact, bring us closer to the kind of unity we seek from our 
allies.
    So, I truly hope that this is the direction that we will 
head, Mr. Chairman.
    The Chairman. Senator Kaine.
    Senator Kaine. Thank you, Mr. Chairman.
    And thank you, to the witnesses.
    One of the events in 2013 that was a precipitator of the 
massive street protest was Yanukovych's unwillingness to sign 
the EU association agreements, both the political and economic 
agreements. We have not yet gotten into this. In March, the 
political association agreement, I guess, was signed. And then, 
in June, the economic association agreement was signed between 
the new Ukrainian Government and the EU, which suggests both 
some EU cooperation and the effect of this election in 
continuing the Ukrainian path toward greater associations with 
the EU.
    What is the significance of the signing of those 
association agreements, both for Ukraine and what has the 
reaction been in Russia to those signatures after they were 
balked at in the end of 2013?
    Ms. Nuland. Overwhelming support, needless to say, in 
Ukraine. It was one of the major tenets that President 
Poroshenko ran on and that made him a popular and overwhelming 
candidate. Europe has offered Ukraine, through these 
agreements, not only the potential for visa-free travel for all 
of its citizens, but also virtually tariff-free entry to--for 
its products to the European market and the other way. So, it 
is a real economic, political, and people-to-people boost. It 
will require a good amount of hard work to prepare 
implementation.
    The Russians, throughout this process, expressed some 
concern that, because they have tariff-free trade with Ukraine 
now, that there would be unintended impacts on their economic 
situation. They pushed very hard for consultations on the 
implementation of the agreement. And the European Union and 
Ukraine have now agreed to those. And I think, tomorrow, at the 
level of Trade Minister, there will be trilateral discussions 
among the EU, Ukraine, and Russia on how to implement the 
agreement in a way that has least market disruption across the 
region and potentially might benefit Russia, as well, so that 
it might begin to see this in less zero-sum terms.
    Senator Kaine. Right at about the same time as the June 
agreement was being signed with the EU, shortly thereafter, 
NATO met and announced that no new nations were going to be 
coming into NATO--Georgia, Moldova, Ukraine--anytime soon. And, 
in particular about Ukraine, what has the reaction been in the 
Ukraine to this? Was that sort of understood among all parties, 
that this is a time where we move toward further European 
integration on the economic and political front, however we 
kind of put NATO aside for now? Is that sort of, you know, 
generally understood by the Ukrainians? Or did they object to 
that decision?
    Ms. Nuland. Senator, both in his election campaign and 
since, President Poroshenko has made clear that the--for his 
administration, the question of closer integration between 
Ukraine and NATO is not on the table. So, it has not been a 
demand of the Ukrainian side, and the alliance respects that. 
As you know, this has to be a matter of choice for all nations.
    Senator Kaine. I want to associate myself with some of the 
comments made both by the chairman and Senator Rubio on, I 
think, the virtues of more exploration of energy- and 
technology-related sanctions. And I look forward to continuing 
those discussions.
    But, it is important for us, as we weigh sanctions, and 
particularly if we might have to do sanctions unilaterally, if 
we consider doing them ahead of Europe, that that does have 
effects on American companies. The last time we had a hearing 
on this matter here, I hypothesized, naively, not knowing 
anything, what a potential economic effect of financial 
sanctions could be on United States credit card companies 
that--especially the big two--that govern about 90 percent of 
current credit card transactions in Russia. And after just 
blithely hypothesizing it, I got a call the next day from one 
of the American companies, saying that, actually, as a result 
of the sanctions that have been done thus far, the Russian 
Government is now pursuing the creation of its own credit card 
infrastructure and putting laws in place that will really 
punish and hurt the business of the two major American-based 
credit card companies.
    And I was wondering, Assistant Secretary Glaser, if you 
could talk about that a little bit, because unilateral 
sanctions from our side do pose some significant risks if they 
are not done carefully.
    Mr. Glaser. Well, that is absolutely correct, Mr. Senator. 
I would say that some of the retaliatory or countermeasures 
that Russia takes to protect itself from sanctions really are 
just examples of Russia imposing sanctions on itself.
    Senator Kaine. Yes.
    Mr. Glaser. It is examples of Russia pulling itself out of 
the international financial system, isolating itself from the 
international economy, which is the exact opposite of what 
Russia 
needs to be doing in order to address its fundamental economic 
difficulties.
    That said, we are aware that the actions we take could have 
impact on American business and American companies, and it is 
something we take quite seriously. I think American businesses 
and American companies understand what is at stake, and they 
understand that it is not business as usual with respect to 
Russia. And they understand what we are trying to accomplish, 
in terms of the future of Ukraine and the future of Europe and 
the future of the international community. So, they understand 
these are important matters. And, I think, as always, we are 
prepared to move forward if we need to. But, again, it should 
go without saying, but I think it bears repeating, it is always 
going to be more effective, both politically, practically, and 
in terms of fairness to American companies, if we can move 
forward multilaterally, which, again, is why I think it is time 
well spent, and effort well spent, to try to achieve that.
    Senator Kaine. Let me just make sure. Do I have my facts 
right on this? Because I was just hypothesizing last time. I 
understand that the U.S. financial sanctions have led Russia to 
do legal reforms that would essentially make it near impossible 
for Visa and MasterCard, which now cover 90 percent of credit 
card transactions in Russia--the effect of our sanctions has 
been for Russia to move forward with legal measures that will 
make it virtually impossible for Visa and MasterCard to operate 
in that country. Am I right about that?
    Mr. Glaser. Well, one of the things that Russia has done as 
a result of this overall situation, certainly to include United 
States sanctions--U.S. unilateral sanctions what we have 
imposed--has been to move forward on ideas that, frankly, have 
been circulating within Russia for quite some time, in terms of 
a variety of measures that would require credit card companies 
or other types of financial entities to locate within Russia. 
And yes, that would create serious problems for companies like 
Visa and MasterCard.
    Senator Kaine. I was watching the interaction between 
Senator Corker and Secretary Nuland on this. You know, and the 
Senator was asking a very appropriate question, Why is it hard 
to do these things? I do not think the answer is that hard. I 
mean, I think unilateral sanctions without the EU could have 
some effect on Russia, but it also has very significant effects 
on us. And then, if it opens up opportunities for European 
businesses to take the business that we are doing, then we at 
least have to grapple with that kind of cost-benefit equation 
in moving forward.
    The best sanctions are ones where we are together with the 
EU. That does not mean we should not do unilateral sanctions, 
but the ones we have done already have not only affected the 
European economy, but they have already had a pretty 
significant effect on some fairly important American 
businesses. And we just have to balance that out.
    Thank you, Mr. Chair.
    The Chairman. Senator Markey.
    Senator Markey. Thank you, Mr. Chairman. Thank you for 
holding this very important hearing.
    Two weeks ago, I, along with some of my colleagues on this 
committee, sent a letter to the President, urging him to make 
energy security the centerpiece of our engagement with the new 
leadership in the Ukraine. This is urgent. And I am concerned 
that there are two threats that may be more powerful than 
Russian troops when it comes to the challenges facing the new 
Ukrainian Government, and they are both related to energy.
    First, Russia has shut off the natural-gas spigots to 
Ukraine. That is half of Ukraine's supply. Gone. When winter 
arrives and natural-gas demand spikes, this could become a 
crisis.
    Second, Ukraine has begun eliminating their energy 
subsidies. Energy subsidies provided by the Ukrainian 
Government are massive, amounting to 8 percent of the country's 
entire GDP. The $17 billion loan package approved by the IMF to 
stabilize the Ukrainian economy includes requirements that 
Ukraine gradually eliminate these subsidies. As a result, 
retail natural-gas rates in Ukraine will rise by 56 percent 
this year, another 40 percent next year, and another 20 percent 
in 2016 and 2017. That is a potential new source of 
instability. Ukraine's subsidies do make energy markets opaque, 
inefficient, and susceptible to corruption, but they are also 
extremely popular. They keep energy affordable for many 
households.
    Now we are talking about a brand new government coming in 
and ushering in a doubling of energy prices. This is, of 
course, music to Putin's ears. He wants nothing more than a 
Ukrainian population distrustful of their government and 
looking for alternatives.
    Ukraine needs an Apollo-project-like effort to become more 
energy efficient and increase production within their borders 
in order to get off of Russian gas. And, like the Apollo 
project, failure is not an option in this area, either. There 
is a narrow window of time to help this new government 
consolidate support and give Ukrainians a credible bulwark 
against Russia.
    So, Ambassador, are you concerned about the reaction from 
middle- and low-income people in Ukraine when their energy 
bills skyrocket 56 percent right after the new government takes 
control?
    Ms. Nuland. Well, Senator, thank you for your commitment to 
this issue in Ukraine. It is also a priority of the Ukrainian 
Government and it is a priority of the assistance efforts that 
we have going with the Ukrainians.
    As you know, I think, these price hikes in energy were part 
of the IMF requirement for Ukraine to get healthy, which is 
why, when we came to the Congress to ask you for the billion 
dollars for the loan guarantee, we earmark, in coordination 
with the Ukrainian Government, the vast majority of it to help 
insulate the most vulnerable in the Ukrainian population from 
these kinds of adjustments, particularly in household energy 
prices. So, we have already made a huge downpayment there.
    When you get our congressional notification, that I make 
reference to in my testimony, for the remaining $59 million we 
have this year for assistance, you will see a large chunk for 
the whole complex of energy issues, from energy efficiency to 
restructuring the sector, to diversification. You, yourself, 
have said in previous hearings, accurately, that Ukraine wastes 
a third of its energy out the windows and in other inefficient 
ways. But, we are also working aggressively with European 
allies and partners on reverse flow. We have had good success 
in beginning reverse flow gas into Ukraine from Bulgaria, 
Slovakia, Hungary. We are going to continue those efforts, in 
coordination with the European Commission.
    Senator Markey. Thirty-five Ukrainian mayors sent a letter 
urgently requesting assistance in increasing the energy 
efficiency of their buildings and district heating systems. We 
are talking about inefficient Soviet-era boilers, buildings 
without thermostats, uninsulated steam pipes, really the lowest 
of low-hanging fruit all right there, with these mayors begging 
for help. Are you finding an appetite within the new Ukraine to 
move rapidly and to have additional United States assistance to 
help with this project? Because, ultimately, we need to have 
some kind of goals that the government is establishing. And 
perhaps you could give us some sense of what you believe is a 
reasonable goal for the Ukraines to reach, in terms of 
increased energy efficiency, perhaps over the next 2 years, 
over the next 5 years, et cetera.
    Ms. Nuland. Senator, we will get you the Energy 
Department's assessment of how quickly they can move.
    But, they are making this a priority. As you know, they 
have to change the tax base, they have to change the incentive 
structure for Ukrainian industry, in particular, to reform. 
Interestingly, in the conversations we have had with the 
Ukrainian Government about the challenges of revitalizing 
Ukraine's east and recovering if they can bring peace and 
security back, one of their focuses is on energy efficiency and 
recapturing revenue that is lost in these rust-belt industries.
    So, let me just do a shout-out to one of the requests that 
we have made of the Congress, which is to be able to use 
funding from 
the Western New Independent States Enterprise Fund for 
microprojects in the east, some of them targeted specifically 
at retooling old factories.
    Senator Markey. Okay. Well, I think----
    Ms. Nuland [continuing]. I would just ask you to support 
that.
    Senator Markey. I think that that is an excellent request. 
But, I would like to see enhanced, increased attention to this 
area, because, obviously, with a 56-percent increase in 
natural-gas prices coming up this winter, and with 35 mayors 
writing about their old Soviet-style buildings and boilers, 
there is a big appetite right now to make a quick change. A 
quick change. And I just think that we have to front-burner 
this issue to help them to move very, very quickly. Because, 
again, that is what will keep Putin and Gazprom sleepless at 
night, if they do believe that they are responding to their 
mayors, who realize the bills, which are going to be run up.
    And so, again, I urge you to have a program of that nature, 
and to set real goals. I think there has to be real goals that 
are set in this energy sector. Same thing is true, by the way, 
for natural gas. I think if we are going to be helping them 
with new technologies--and we should have a telescoped 
timeframe that we create, then, for a doubling of natural-gas 
production inside of Ukraine. And we should set those goals, 
set benchmarks, and then let us meet them. Because that is the 
real threat to Ukraine from Russia. And once we do that, I 
think that country will feel a lot better about its ability to 
be able to cope with this threat that is almost primarily 
energy related.
    And so, I think, perhaps by the next time we have a hearing 
on this subject, Mr. Chairman, if we could have the concrete 
goals that are being set, especially for this winter, and the 
message that are being sent to the Ukrainian people. That will 
counter the propaganda that is going to come in from Putin as 
to the suffering that he will say is unnecessarily being 
inflicted by the Ukrainian Government on his own people. I just 
think we need a counter message that is very concrete and not 
vague.
    I thank you, Mr. Chairman.
    The Chairman. Thank you, Senator. And I appreciate your 
ideas. I think we will take them and try to move them forward 
here in the committee.
    Let me just say, I appreciate the thoughtful remarks of 
Senator Murphy and Senator Kaine. As we close this panel, 
because I want to go to our second distinguished panel before 
the 12 o'clock vote that is coming up next, I understand that 
there are never simple or great choices in these matters. But, 
time is on Putin's side. And I say that because he certainly 
believes he can wait out the United States and the European 
Union and maintain enough instability in the Ukraine to damage 
its economy, to frustrate its public--such as in the context of 
energy, as Senator Markey just talked about--and to undermine 
the government's political cohesion.
    In short, Putin does not have to win today. He only needs 
to generate a frozen conflict in eastern Ukraine that he can 
exploit when the world has moved on. And that has been his 
standard operating procedure for years--Russia has used it in 
Georgia and in Moldova, where Russian troops continue to occupy 
territory and back separatists. By giving the world the 
appearance of responsibility and reasonability by asking the 
Parliament to withdraw the law authorizing the use of military 
force in the Ukraine, Putin successfully gave those who wish to 
avoid the G7 sectoral sanctions at the end of June ammunition 
to argue against action at the time.
    So, we have seen this movie before, and he has been 
successful in it. And I would just hope, as I said to 
Chancellor Merkel when we had the opportunity to have dinner 
with her--as I have said to others who have come to visit with 
us from the European Union, and to our own government--that if 
we have seen this movie before, and we know how it plays out, 
we should be able to not have the movie repeat itself with the 
same ending. And that is really my concern here. I do not see 
us, at this point in time, where we are headed, changing the 
course of events in a way that this will not play out in--
nobody even talks about Crimea anymore.
    Thank you all for your testimony. We will look forward to 
continuing to engage with you on this issue.
    Let me call up our next panel. We have two very 
distinguished former National Security Advisors: Stephen 
Hadley, the former National Security Advisor to President Bush 
and now a principal at Rice Hadley Gates, LLC; and Zbigniew 
Brzezinski, counselor and trustee at the Center for Strategic 
and International Studies, the author of countless books, to 
give us the benefit of his profound insight into world history 
and world affairs.
    We are incredibly pleased to welcome both of these 
gentlemen back to the committee. We look forward to your 
testimony.
    If I could have my friends in the press--so that I can see 
our witnesses. Thank you.
    We welcome you back to the committee. We would remind you 
that your full statements will be included in the record. As 
you can see, members have a lot of questions on these issues 
and would like to take advantage of your expertise, and we want 
to have time for that, especially since there is a 12 o'clock 
vote.
    So, with that, Dr. Brzezinski, we will start with you, and 
then we will go to Mr. Hadley, and then we will get to 
questions.
    Just push the button there, yes.

   STATEMENT OF ZBIGNIEW K. BRZEZINSKI, FORMER U.S. NATIONAL 
 SECURITY ADVISOR, COUNSELOR AND TRUSTEE, CENTER FOR STRATEGIC 
           AND INTERNATIONAL STUDIES, WASHINGTON, DC

    Dr. Brzezinski. Thank you, Mr. Chairman, Senators.
    Since I know your time is very limited, I do not think I am 
going to read to you my statement, even though it is actually 
fairly short. I will merely summarize the three key points that 
I try to make in it.
    I acknowledge the fact that what Putin tried to do 3 months 
ago in regards to Crimea is not the same thing as he is trying 
to do in regards to Ukraine as a whole. Nonetheless, at the 
time, it generated enormous enthusiasm in Russia; and, in fact, 
a session of the Russian Parliament at which he presided on 
March 18 was really like a jamboree on the subject of 
chauvinism, Russia's world role, the unity of all Russian 
speakers around the world, and the role of Russia as a global 
civilization.
    Since then, I think realism has begun to intrude more 
directly, namely that Ukraine will not fall quickly, that 
Ukraine is not resigned to being simply a member of a renamed 
version of the Soviet Union or of the tsarist empire, and that 
there is a rising will in Ukraine to deal with their legacies 
of wasted 20 years of Ukrainian independence, and that major 
reforms are necessary, but also acts of will designed to show 
Ukrainian determination to be an independent nation.
    This is the context. And I think Putin has to realize by 
now that he has to think of alternative choices. I outline them 
more fully in my statement, but the first is, of course, some 
sort of an accommodation with the West. And I try to outline in 
my statement what might be the principal features of such an 
accommodation, one which does not meet the maximum objectives 
of those in the West who would like to see Ukraine a member of 
the European Union, but also of NATO, but it certain does not 
meet, also, the maximum objectives of Russia, which would like 
to see Ukraine subordinated to Moscow in the context of the so-
called Eurasian Union. There are other specifics that would 
have to be considered, but that, in a sense, strikes me as a 
possible framework for an accommodation.
    Failing that, Putin has the option of continuing more 
directly to destabilize Ukraine. He has done this recently. 
That has not worked that well. He could attempt it on a larger 
scale. But, if he does, I rather expect, from what one knows of 
the attitudes specifically of Chancellor Merkel and of 
President Hollande, of France, on this subject, that acts of a 
more overt and drastic type on the larger scale to destabilize 
Ukraine would precipitate the kinds of sanctions that had been 
planned and which the United States would like to see 
implemented sooner rather than later. And that remains a bone 
of contention in the alliance, but they are there. And the 
initial sanctions have sent at least ominous signals to the 
Russians not to take these issues lightly.
    The third alternative, of course, is a complete showdown, 
militarily, on the model, perhaps, of Crimea, but overlooking 
the reality that all of Ukraine is far more complicated than a 
relatively small peninsula, the object of a sudden and 
unexpected attack. I think it is quite clear that if there were 
to be a larger Russian intervention, the Ukrainians would 
resist on a protracted basis; and especially, the risk of urban 
warfare for taking Ukraine over would entail the necessity of 
occupying the large cities--ultimately, Kiev itself--is 
something that no Russian leader can contemplate lightly. It 
could become protracted, bloody, very costly, and the result 
would be a disaster, both for Ukraine and for Russia. Both 
would be basket cases as a consequence of anything of this 
sort.
    So, the choices that Mr. Putin has to make are not easy, 
but they are there, and they reflect the fact that I think it 
is becoming increasingly clear to him that he should not 
confuse a brief triumph in which he exalted, a few months ago, 
in Crimea, with the larger dilemma of Ukraine and the longer 
range relationship of Russia to the global community.
    As it is--and I will end on this--Russia's international 
position has deteriorated. It is certainly no longer a serious 
partner with the United States. There are more and more 
questions about Russia's role in the world in Europe. And 
insofar as China is concerned, it is increasingly evident that, 
if there is any relationship between Russia and China that has 
any degree of depth to it, it is an asymmetrical relationship 
in which China, by far, is the senior partner that can insist 
on terms favorable to it, as was the case in the recent energy 
agreement with Russia. And Russia is a junior partner, 
geographically, culturally, and demographically, culturally and 
borderwise vulnerable to Chinese pressure.
    So, I think that is where I will stop. The statement goes 
into these issues at greater length.
    Thank you, Mr. Chairman, for giving me this opportunity.
    [The prepared statement of Dr. Brzezinski follows:]

             Prepared Statement of Dr. Zbigniew Brzezinski

    More than 3 months have passed since Putin's triumphalist speech to 
the Russian Parliament. In it, he exalted in his military seizure of 
Crimea while basking in an orgy of unleashed chauvinistic sentiments. 
Putin clearly relished the enthusiasm and apparently gave little 
thought to the larger and longer term strategic consequences of what he 
unleashed.
    Three months later, with continuing uncertainty regarding the 
future of Russo-Ukrainian relations, but also growing international 
costs for Russia itself, Putin faces three basic choices.
    (1) To accommodate with Ukraine by terminating the assault on 
Ukrainian sovereignty and economic well-being. This will not be easy to 
do, and it will require wisdom and persistence both from Russia as well 
as Ukraine and the West. Essentially, an accommodation should involve 
the termination of the Russian efforts to destabilize Ukraine from 
within, not to mention ending possible threats of a larger military 
invasion--as well as some sort of an East-West understanding which 
entails Russia's tacit acceptance of Ukraine's prolonged journey toward 
eventual EU membership. At the same time, it should be made clear to 
all concerned that Ukraine neither seeks nor the West contemplates 
Ukrainian membership in the NATO alliance. It is reasonable for the 
Russians to feel uncomfortable about that prospect.
    At the same time, it would be made clear that Russia no longer 
expects Ukraine to become part of the ``Eurasian Union,'' a designation 
which is a transparent cover for the recreation of something 
approximating the former Soviet Union or the Tsarist Empire. An 
understanding regarding this issue should not preclude, however, a 
Russian-Ukrainian trade deal, based on the fact that from a purely 
economic point of view, both countries can benefit from normal and 
increasingly cooperative trade as well as financial relations.
    The international community, specifically the West, could in some 
fashion reiterate their support for that outcome, not to mention the 
full scale resumption of more normal relations with Russia itself, 
including the lifting of existing sanctions.
    (2) Putin's second choice is to continue the effort to destabilize 
Ukraine by sponsoring thinly veiled military intervention designed to 
disrupt normal life in portions of Ukraine. Should Russia continue on 
this course, obviously the West would have to undertake a full scale, 
prolonged, and truly painful application of sanctions designed to 
convey to Russia the painful consequences of its unwarranted violation 
of Ukraine's sovereignty. In effect, this very unfortunate outcome 
would likely produce the emergence of two basket cases in Eastern 
Europe: in Ukraine because of deliberate Russian actions; and in Russia 
itself as a justified consequence of the needed Western reaction to its 
aggression.
    (3) Putin's third choice could involve the decision to invade 
Ukraine across the board, exploiting Russia's obviously much larger 
military potential. Such an action, however, would not only prompt 
sustained retaliation by the West but could provoke prolonged Ukrainian 
resistance, especially based on spontaneous outbursts of anger in its 
larger cities. In these conditions, it is unlikely that the West would 
remain entirely passive. If the resistance was sustained and intense, 
there would be growing pressure on the members of NATO to provide 
various forms of support for the Ukrainians, thereby making the 
conflict much more prolonged and costly to the aggressor.
    For the Kremlin, the consequence of the third option would be not 
only a permanently hostile Ukrainian population of more than 40 million 
people, but also an economically retarded and politically isolated 
Russia, facing the growing possibility of increasing internal unrest.
    In brief, the obvious choice for everyone concerned is to find a 
formula for international accommodation, and that has to involve the 
abandonment of the use of force against Ukraine by Russia. The issue of 
Crimea will remain unresolved for the time being, but it will be an 
enduring reminder that chauvinistic fanaticism is not the best point of 
departure for the resolution of larger and more complex issues. This is 
why Putin's actions are a threat not only to the West but ultimately 
also to Russia itself.

    The Chairman. Thank you, Dr. Brzezinski.
    Mr. Hadley.

   STATEMENT OF HON. STEPHEN J. HADLEY, FORMER U.S. NATIONAL 
     SECURITY ADVISOR, PRINCIPAL, RICE HADLEY GATES, LLC, 
                         WASHINGTON, DC

    Mr. Hadley. Thank you very much for the opportunity to be 
with you this morning.
    I have a statement, which I have submitted, that talks 
about what Putin is up to, how far he is likely to press his 
current actions, what should be our objectives and strategy for 
dealing with it. I will just leave that for the record.
    The bottom line I try to make is that we have seen in the 
past that Putin's objectives escalate as he succeeds and is not 
met with resistance or counter pressure. And therefore, I think 
it is important that we be putting together the elements of a 
strategy that will put on that counter pressure.
    I thought what I might do with my time is try to answer 
some of the questions that you have raised in the first 
session, and give you my answers to them, for what it is worth.
    Why is the administration so----
    The Chairman. Mr. Hadley, could you just take that 
microphone and put it closer to you?
    Mr. Hadley. Yes, sir, sorry.
    The Chairman. There we go, perfect. Thank you.
    Mr. Hadley. So, why is the--thank you, Mr. Chairman--why is 
the administration reluctant on sanctions? I think it is 
partly, one, they want to have unity with the Europeans, 
because they do not want to let Putin drive a wedge between the 
United States and Europe. And I think that is right.
    Second, I think it is an effectiveness point. If you look 
at foreign direct investment, 75 percent of foreign direct 
investment in Russia comes from the EU. The United States only 
has about $10 billion a year. We are 10th, in terms of foreign 
investment. If you look at trading relations, we are the 12th 
export partner, the 5th import partner of Russia. So, we do not 
have the economic clout. And if you really want to be 
effective, you want to have the Europeans along, because that 
is where the investment and the trading relations are.
    Third, I think they are reluctant because sometimes 
sanctions are more effective in the anticipation than they are 
in the execution.
    So, I think that explains the reluctance.
    I think, though, as I say in the statement, we have 
telegraphed this punch so often without delivering it, I think 
it raises a question of credibility. And therefore, I think, 
Mr. Chairman, in response to your point, if the Europeans do 
not act on July 16, I think we are going to be forced to go 
ahead unilaterally. But, I would hope we would do it in the 
following way: having worked with Chancellor Merkel, who has 
the lead on this within Europe, with an understanding that we 
will go first and she will do her best so that the Europeans 
will follow.
    Similarly, the legislation, Senator Rubio, that you talked 
about that Senator Corker, I think, is sponsoring, a kind of a 
roadmap of what will happen if Putin persists in this activity, 
I think that can be a very useful tool, but I would hope it 
would not only have bipartisan support within the Congress, but 
is something we would have worked with the Europeans so that 
it, in fact, becomes a roadmap for what we and the Europeans 
will do together if Russia and Putin persist. That does not 
mean that it has to be unilaterally--has to be multilateral at 
the time it is adopted. It--what we would hope is--many times, 
we have to lead the Europeans by taking action, but with an 
understanding that, hopefully, in the end of the day, we will 
end up on the same page.
    Last two points and one I think--I saw Dr. Brzezinski's 
article in the Post this morning, and I thought it was a very 
good statement. I only have one small quibble with it, which 
answers one of the questions Senator Kaine asked. We ought to 
be strengthening Ukraine's capacity to defend itself, and other 
states that are at risk from pressure from Russia. The issue of 
NATO enlargement is not on the table. The Ukrainians have not 
asked. For them to join NATO would be a long process, years in 
the future. So, it is not on the table. But, I would also not 
explicitly take it off the table and say that the door is 
closed to Ukraine, because I would not like to reward Putin for 
his pressure. And I think we need to stick to the principle 
that countries should be free to select the alliances they 
choose, free of coercion, pressure, or the use of force.
    Finally, last point--as I say in my statement, I think 
there are elements of policy that we need to put in place that 
are probably even more important than sanctions. And sanctions 
over the long term, I think, we want to do in a way that does 
not close the door on Russia, does not say to Ukraine that, 
``If you come West, you have to sever your historical and 
economic ties with Russia.'' I do not think that is smart. I 
think we need to leave the door open for a Russia that will 
change its policies and come back to the post-cold-war 
consensus and want to move West. And I think we should do that 
to keep faith with those people in Russia that hope for a more 
democratic and a more Western-oriented future for their 
country.
    Thank you very much, Mr. Chairman.
    [The prepared statement of Mr. Hadley follows:]

                Prepared Statement of Stephen J. Hadley

               russia and ongoing developments in ukraine
    It is a great privilege to have the opportunity to appear before 
the committee this morning. I would like to discuss briefly what 
Russian President Putin is seeking to achieve by his actions in 
Ukraine, how far he is likely to press these actions, what should be 
U.S. and allied objectives in dealing with the Russian challenge in 
Ukraine, and what would be the elements of a strategy to achieve these 
objectives. The views I will express are my own and not the views of 
any organization with which I may be affiliated.
What is President Putin Seeking To Achieve By His Actions in Ukraine?
    President Putin is often quoted as saying that one of the greatest 
tragedies of the 20th century was the dissolution of the Soviet Union. 
He gives as a principal reason for this conclusion the fact that it 
left hundreds of thousands of ethnic Russians and Russian-speakers 
outside the borders of Mother Russia. For two decades he has said his 
interests were in better treatment of Russian nationals living as 
ethnic minorities in countries outside Russia. But when he ordered the 
invasion of Georgia in 2008, the invasion and annexation of Crimea in 
2014, and the active subversion and destabilization of eastern Ukraine, 
President Putin went way beyond any reasonable action aimed at 
improving the situation of these minorities. Instead President Putin 
has attacked, violated, and repudiated the basic principles of the 
post-cold-war settlement in Europe: acceptance of existing borders, 
respect for the sovereignty and territorial integrity of all states, 
and the right of all states to choose their affiliations and alliances 
free of coercion and the threat or use of force.
    President Putin has an alternative vision for Europe that is less 
the recreation of the Soviet Union than the restoration of Russian 
greatness. Through the Eurasian Union, the Eurasian Customs Union, and 
the Collective Security Treaty Organization, President Putin hopes to 
establish a Russian-dominated confederation of states between the 
European Union on the one hand and China and the Asian States on the 
other. With Belarus, Kazakhstan, and Russia as core members, and 
Armenia, Kyrgyzstan, and Tajikistan likely additions, he is off to a 
good start. But he needs Ukraine to give the organization real economic 
and geopolitical heft. That means he must prevent Ukraine from becoming 
part of the economic and security organizations to its West, namely the 
European Union (EU) and the North Atlantic Treaty Organization (NATO). 
And that is what his efforts in Ukraine--as well as Georgia--have been 
about.
How Far is President Putin Likely To Press These Actions?
    During the crisis provoked by President Putin's invasion of 
Georgia, his initial objectives were somewhat limited. But as the 
operation succeeded, and when he thought his actions might not be 
effectively opposed, his objectives expanded accordingly. Indeed, he 
ultimately embraced the objective of toppling the democratically 
elected Georgian Government in Tbilisi. Efforts by the United States 
and its allies, among other factors, caused the Russians ultimately to 
stop short of this objective. Similar ``objective escalation'' occurred 
in the wake of his ``success'' in Crimea and could expand in connection 
with Russian action in eastern Ukraine or elsewhere.
    One concern would be if Russia's active subversion and 
destabilization campaign were to succeed in Ukraine, President Putin 
might try something similar in one or more of the Baltic States, such 
as Latvia. The objective here would be to show that the article 5 
security guarantee given to these countries as NATO members was not 
worth the paper it is written on and could not protect these countries 
from being destabilized and perhaps even losing part of their 
territory.
    At the most extreme end of the ``objective escalation'' spectrum, 
President Putin might even seek to split or destabilize the European 
Union itself. We know that he has been cultivating relations with 
extremist political parties in Europe particularly on the political 
right. These extremist parties have mostly only one thing in common--
they oppose the European Union. Destabilizing the European Union could 
be attractive in its own right. But it could also preoccupy the EU with 
its own internal survival so as to distract it from efforts to reach 
out and embrace Ukraine, Moldova, Georgia, and other countries between 
the European Union and Russia's Eurasian Union.
    The best way to seek to prevent President Putin from moving up the 
``objective escalation'' ladder is to seek to deny him success in his 
current efforts and to show that any future efforts will be effectively 
opposed.
What Should Be U.S. and Allied Objectives In Dealing With the Russian 
        Challenge in Ukraine?
    The United States should work with its friends and allies to seek 
to:

   Deter Russia from further action against Ukraine or any 
        other state--in violation of the basic principles of the post-
        cold-war settlement in Europe.
   Deny targets of opportunity that President Putin can exploit 
        to advance his agenda or, to put it another way, either 
        eliminate or harden Europe's vulnerabilities against further 
        Russian action.
   Reassure those NATO allies vulnerable to Russian pressure of 
        NATO's article 5 commitment to their security.
   Reenergize the historic vision that the United States and 
        its friends and allies share of a Europe whole, free, and at 
        peace as an alternative to President Putin's vision of Russian 
        domination of its neighbors and of increasing authoritarianism 
        at home.
   Distinguish between Putin and Russia and thereby avoid re-
        dividing Europe or seeking to exclude or isolate Russia from 
        Europe by disregarding or disrupting the historical and 
        economic ties between Russia and its neighbors to the West.

    I understand that this last point will be controversial in some 
quarters given the total unacceptability of President Putin's actions. 
But it is in the interest of the United States and the rest of Europe 
to keep the door open to Russia to take its place in a Europe based on 
the post-cold-war principles on which a Europe whole, free, and at 
peace can be built. This will require Russia to change its current 
behavior, either because of a change of heart on the part of President 
Putin (however unlikely) or because of the efforts of those in Russia 
committed to a more democratic and peaceful future for their country. 
We must leave the door open to them--to give them hope.
What Would Be the Elements of a Strategy To Achieve These Objectives?
    Briefly, a comprehensive strategy seeking to achieve these 
objectives could include the following elements:

   Complete the Transatlantic Trade and Investment Partnership 
        (TTIP) as a way to bind Europe together and to the United 
        States in a relationship of economic growth and prosperity--
        extending the agreement to include those European countries 
        with customs unions or free trade agreements with the EU 
        already, such as Ukraine and Turkey, while leaving the door 
        open for, ultimately, a more peaceful and democratic Russia.
   Develop a joint transatlantic energy strategy that will 
        reduce the EU's dependence on Russian oil and gas--through such 
        things as liquid natural gas (LNG) shipments from the United 
        States, the development of shale oil and shale gas in Europe, 
        better use of existing pipeline infrastructure to reduce 
        dependence on Russia, and construction of new non-Russian 
        controlled pipelines.
   Resume the European Union's ``open door'' to association 
        agreements and ultimately membership for those countries to its 
        east that seek such membership--and include them in a way that 
        does not require them to sever existing and historical economic 
        ties to Russia.
   Recommit the United States to the security of Europe in both 
        word and deed, through additional deployments and exercises of 
        American forces in Europe along with our NATO allies and other 
        friends.
   Revitalize the NATO alliance by additional planning, 
        exercises, and military capability--especially on the part of 
        America's NATO allies--directed to NATO's core mission of 
        maintaining security in Europe--while maintaining an open door 
        to new members that meet its criteria.
   Help nations subject to Russian pressure to strengthen their 
        own capacity to defend their territory from either armed attack 
        or subversion/destabilization including by providing military, 
        paramilitary, and police training and equipment.
   Help the Ukrainian people to overcome two decades of 
        squandered trust and missed opportunity by their leaders and to 
        build an inclusive, democratic, and noncorrupt government and 
        market-based economy that can provide security and prosperity 
        to all Ukrainians.

    There has been a lot of talk about economic sanctions against 
Russia. These are an important element of a comprehensive strategy. So 
far, the United States and its allies have threatened more sanctions 
then they have delivered, undercutting the credibility of this element 
of strategy. But sanctions are only part of a strategy not the sum 
total of it. The level of the sanctions imposed on Russia in the short 
term should not be the measure of the success or failure of the overall 
strategy. For the goal of the strategy should be to change over time 
what might be called the ``correlation of forces'' in Europe so as to 
reduce Russia's leverage and deter the kind of Russian actions we have 
seen in Georgia and Ukraine. In this context, the other elements of a 
comprehensive strategy outlined above are perhaps as important if not 
more important than short-term economic sanctions.

    The Chairman. Well, thank you both. It takes tremendous 
talent to be able to synthesize major concepts in such a short 
period of time. And I have read the testimony, and it is very 
instructive.
    My concern--I always prefer multilateral sanctions, when we 
can get them. I prefer not to have sanctions if we do not even 
need them in order to achieve our goals. If diplomatic 
discourse can ultimately lead us to a point where we can 
negotiate an agreement that is acceptable, obviously that is 
desirable as well. But, looking at Russia's history here, with 
Georgia, Moldova, and now the Ukraine, at some point--and I 
think you may have alluded to this by saying we may have to go 
first--at some point, if there is to be no significant arming 
of the Ukrainian military so that the challenges of the 
Russians trying to take them on are further exacerbated--Dr. 
Brzezinski has already said the Ukrainians will fight tooth-
and-nail, especially in urban centers, and that that would be a 
concept that no Russian leader could fathom doing. But this 
would enhance that possibility.
    Also, if we are not to, at the end of the day, pursue any 
sanctions because the Europeans are unwilling to, what is to 
stop Putin from continuing on a course of destabilization? Not 
invasion, but destabilization. And what is it that sends him a 
message that the next place that he picks, he is free to do so, 
because, at the end of the day, he will get condemnation, but 
no other consequences?
    Either one of you, I am happy to----
    Dr. Brzezinski. Well, Mr. Chairman, let me just----
    The Chairman. If you would put your button on; your 
microphone.
    Dr. Brzezinski. Let me briefly make one comment on your 
observation of guarding the NATO issue. I think there is a 
misunderstanding here. I make it very clear that NATO 
membership can be forsaken. The Ukrainians are not asking for 
it. A large proportion of the Ukrainian people do not want to 
be in it. And, in any case, if it were to transpire that there 
is an accommodation, I think, in that context, it would be 
possible to negotiate it with the Ukrainians not being promised 
or having door open for them in the future regarding NATO. One 
can, I think, understand the Russian concerns here if one look 
at the map. NATO membership would jut a large, large new area 
deep into what traditionally has been the Russian Empire and 
create an altogether new geopolitical situation, which I cannot 
see the Russians ever accepting unless there is a significant 
accommodation of--larger sense. And that is all I had in mind.
    On the question of the arms, my view is that we should be 
very open about it, and not secretive. If the Ukrainians need 
arms for their defense, we should be willing to provide them, 
although in a manner which does not provide for a capacity of 
the Ukrainians to undertake offensive actions. The Russians 
would exploit any transfer of arms to the Ukrainians as a 
threat to their security. If we are very deliberate, in terms 
of what we convey to the Ukrainians, we can enhance their 
capacity, particularly to defend their cities, and make the 
attempt to occupy any large cities by the Russian Armed Forces 
prohibitively expensive. And that will have, then, political 
consequences of a prolonged conflict, financial consequences 
internationally, mobilization of public opinion internationally 
against Russia, which I think would make any rational Russian 
Government think twice of that option.
    Mr. Hadley. Mr. Chairman, I think sanctions are an 
important element of a comprehensive policy, and at some point 
we may have to go out ahead to lead by example as a way to 
bring the Europeans along. But, I think we must focus equally 
on the other elements of a comprehensive strategy that, over 
the long term, are going to be more important in reducing 
Putin's leverage and his ability to pursue these kinds of 
activities. Completing the TTIP negotiations has been talked 
about; developing a joint transatlantic energy strategy that 
reduces the EU's dependence on Russian oil and gas; resuming an 
open door to accession to the European Union; the United States 
recommitting to the security of Europe, in word and deed, by 
some of our deployments and exercises; revitalizing the NATO 
alliance; getting Europeans to make more of a commitment and to 
refocus on the core mission of preserving and protecting the 
security of Europe; helping the nations that are subject to 
Russian pressure to build self-defense forces; and finally, 
helping Ukraine succeed as a democratic, prosperous country 
able to provide security and prosperity for its people. Those 
long-term commitments are what are really going to eliminate 
the opportunities for Putin to make mischief in the future.
    The Chairman. I appreciate that.
    Let me ask one last question. From the end of the cold war, 
attempts have been made to draw Russia into the community of 
nations as a stable, prosperous, and democratic partner. But, 
given Putin's high level of domestic support in recent polls, I 
guess there is some allure, among Russians, of the empire or 
power over other countries as being attractive. Could we have 
done things differently that would have changed the course of 
events, or was Putin's Russia inevitable? And what kind of 
policies would you advocate--and you were referring to keeping 
the door open, Mr. Hadley--that 
the United States and international community should follow to 
encourage Russia to forsake imperial aspirations and to get 
back into an international order, which they have upended by 
virtue of their invasion in Crimea and what they are doing in 
the Ukraine?
    These questions are for both of you. I would like to hear 
from both of you on this.
    Dr. Brzezinski. Basically, I think we have to maintain the 
policy that we have adopted in the wake of the collapse of the 
Soviet Union, which is to create opportunities for Russia's 
closer association with the West, but without compromising our 
fundamental principles and while entertaining the hope that, 
over time, internal change in Russia will contribute to the 
gradual democratization of Russia itself.
    There is some evidence to indicate that this, in the longer 
run, is not only possible, but even probable. There is 
developing a Russian middle class which increasingly thrives on 
essentially adopting as much as possible of the Western 
lifestyle and of connectivity with the West. It sends the 
children to the West. It travels to the West. It sends its 
money to the West. And perhaps that is most persuasive of all.
    Basically, a process is taking place which is demonstrated 
by the scale of the social opposition, the demonstrations, the 
increasing number of commentators speaking up openly on this 
issue. And that is part of a process of change which one can 
cultivate.
    Putin's current moves are, in my judgment, a retrogressive 
aberration connected very much with his personality, his 
previous institutional connections, in particular with the 
instruments of compulsion, perhaps a certain touch of 
megalomania on a personal level. And he appeals on that basis 
to those elements of Russian society which feel themselves 
vulnerable, which are very nationalistic, which are susceptible 
to chauvinistic appeals. And we saw exactly that manifesting 
itself in the wake of the seemingly very easy 
so-called, ``triumph'' in Crimea.
    But, the crisis with Ukraine, I think, is beginning to send 
signals, particularly to the more intelligent internationally 
minded parts of the Russian elite, that Russia is being drawn 
into something that could prove utterly debilitating to Russia 
itself. And this is why, in the longer run, I anticipate that 
there will be some inclination to experiment, to check out, to 
investigate the possibility of some sort of an accommodation 
once it dawns, not only on the Russian elite itself, but 
increasingly maybe on Mr. Putin himself, that the policy of 
violence, either selective or all-out, is, in the long run, not 
the road to success, but a guarantee of Russia as a basket case 
economically and politically.
    The Chairman. Mr. Hadley.
    Mr. Hadley. I agree very much with what Dr. Brzezinski has 
said. Putin views himself as a strong leader who wants to 
return to Russian greatness, but he has a definition of Russian 
greatness, I would say, that is 19th century, it is sort of a 
new neo-Russian Empire. We have to show him that, whatever his 
short-term tactical successes, his actions involve a long-term 
strategic loss and the real future for Russia as a secure and 
prosperous state is going to be, not on 19th-century 
principles, but on 21st-century principles. And those--and we 
need to, therefore, deter him from his 19th-century agenda and 
leave the door open for those who want Russia to actually have 
a 21st-century role of--as--and path for a secure and 
prosperous state.
    The Chairman. Thank you both.
    Senator Corker.
    Senator Corker. Thank you, Mr. Chairman.
    And thank you both for being here. We always appreciate 
having distinguished National Security Advisors here, and 
appreciate your comments.
    And, Dr. Brzezinski, when you say ``accommodation,'' in 
answering the last question, an accommodation to Russia once 
the thinking of the elites permeates the rest of society or 
Putin, what kind of accommodation would that be?
    Dr. Brzezinski. Well, are we talking specifically, in your 
question, about Ukraine, or more generally?
    Senator Corker. Specifically relative to Ukraine.
    Dr. Brzezinski. Well, it seems to me that increasingly it 
is a fact, and no longer a speculation, that Ukraine, as an 
independent state, is going to be moving toward the West. That 
is the predominant predisposition of the Ukrainian people. I 
think the regime that has now emerged in Ukraine is generally 
democratic. It is determined to correct the errors of the last 
20 years. For, I am sad to say, over the last 20 years, Ukraine 
has been governed very badly.
    Senator Corker. Right.
    Dr. Brzezinski. And I think that it is evident to all 
concerned that the regimes that have dominated the political 
scene were self-serving, self-enriching, and not dedicated to 
Ukraine's well-being. This is now changing, in part, to the 
challenge from the outside. The use of force against Ukraine by 
the Russians was a stunning experience for the Ukrainians. 
Historically, they have not been anti-Russian. But also, over 
the last 20 years, they have started to enjoy the fruits of 
independence. And that is especially the case with the younger 
generation. And that younger generation asserted itself in the 
Maidan. And I think that increasingly defines Ukraine today.
    So, the Russians will have to come to terms with that new 
reality. But, otherwise, they will embroil themselves in a 
prolonged adventure, which, as I have tried to stress, would be 
self-debilitating.
    So, I am, on the whole, an optimist. I believe an 
accommodation is possible, because the costs of imposing a 
unilateral solution by the Russians themselves are simply 
disproportionately high to the benefits that could be achieved 
thereby.
    They are beginning to learn this already in the case of 
Crimea. There was this exaltation when they occupied Crimea--
liberation, reunification, all sorts of slogans. What is the 
reality 3 months later? Prices have risen three times. Tourists 
are not coming. They come every year, on a scale of 6 million, 
including a great many from abroad. They are not showing up. 
They have difficulty even in getting there.
    Investments in Ukraine are very difficult to make the 
moment they involve any international deal, because the 
international community has not recognized the incorporation of 
Crimea, which means there will be endless legal suits connected 
with any kind of development in Ukraine--tourism, exploration 
for more energy, or whatever.
    In brief, what seemed like a great success 3 months ago is 
now becoming, I think, increasingly a source of concern. And 
this is where I sort of feel more confident about what is 
happening. I am frustrated that we have not adopted the 
sanctions that we should. I would like to see the Europeans act 
more decisively. I think we could, too. But, by and large, we 
are pointed in the right direction, and I think it is becoming 
more clear to more Russians that Putin is pointed in the wrong 
direction.
    Senator Corker. If I could--I know Hadley has to leave here 
soon, and I know Rubio wants to ask some questions--I will just 
ask one more.
    One of the things that was most poignant to me on a recent 
trip was a comment I referred to in my opening comments, and 
that was a National Security Advisor in eastern Europe 
referring to the fact that if we allow Russia to continue with 
this bad behavior without the sanctions that I think both of 
you have alluded to, we, in essence, will accommodate a bitter 
peace. In other words, we return to business as usual. Nothing 
is really done about what has happened in Crimea and other 
places. Just since both of you have to think for the long haul, 
and have done that within differing administrations, what are 
the risks there, from your perspective, over the longer haul? 
And that is a bitter peace with Russia, where their actions 
have never been countered, where they just kind of fester, if 
you will, in Eastern Europe.
    Mr. Hadley. You know, I think one of the things that we are 
tripping over is the word ``accommodation,'' which suggests 
giving in to Russia. I would rather talk in terms of outcomes. 
I think it is very important that Russia be seen as not to be 
able to succeed with what it is doing and, as I say, that Putin 
sees that, and the Russian people see that, that this 19th-
century nationalistic binge he has been on is not working for 
them. The outcome I think we want is, you know, a Ukraine, that 
if it decides to move West, join the EU and Western 
institutions, is able to do so, an outcome where Ukraine is 
prosperous and secure, an outcome where the Russian people 
within Ukraine can enjoy that security and prosperity, in which 
the Russians see that it is a Ukraine that is not against 
Russia, but is allowed to maintain its historical economic and 
historical ties with Russia.
    And I think that if that happens, the Russian people, at 
some point, are going to decide that maybe Ukraine is a better 
model for their future than this kind of nationalistic, neo-
Russian Empire that Putin is talking about. That is the outcome 
I think we ought to be striving for here.
    Senator Corker. Thank you both for being here.
    Thank you, Mr. Chairman.
    The Chairman. Senator Rubio.
    Senator Rubio. Thank you, Mr. Chairman.
    Thank you both for being here. Thank you both for your 
service to our country over an extended period of time, both in 
government and outside. I appreciate your presence very much.
    Dr. Brzezinski, of course, your service to our country is 
well documented, although these days you are increasingly known 
as Mika's dad. [Laughter.]
    And we watch you quite often in the morning.
    I wanted to ask you both, first, in the previous panel--and 
I know it was kind of simplistic in the way I described it, and 
I do not think it is inconsistent with anything you were 
saying, but--in my mind, the--kind of the 5,000-foot view of 
what Putin is trying to pull off, here, is to reach a point 
where he has exorbitant influence over Kiev's foreign policy, 
vis-a-vis his relationship to Russia. It is what we have all 
been talking about. And, as I have described earlier, I think 
that involves the combination of support for separatists and 
the threat of military engagement, on the one hand, and then 
these sort of things he is doing--calling for cease-fires and 
so forth--to make himself appear as the reasonable conciliator 
in the--juxtaposed against an image he is trying to create, 
that Kiev is the aggressor, and so forth.
    And then I said that I thought--and this is where I hope 
your insight will be helpful--that, within Moscow now, within 
the people making these decisions, I would venture to guess--
obviously, I do not know, but I would venture to guess, and I 
am pretty certain, that they, themselves, are kind of looking 
at this dynamic, and there is two opposing schools of thought. 
One group probably is pushing very hard for more aggressive 
action, and another group is probably saying, ``You know, but 
these sanctions are going to hurt our pocketbook and our 
ability to do things.'' I mean, we should not underestimate how 
important the Asian markets are going to be for Russia's future 
short-term, quite frankly, ability to export energy. And, in 
fact, the estimates are that Asia will become its leading 
export market. To do that, they have got to have the capacity. 
Means they have got to go and explore. I pointed to the fact 
that they are going to struggle in eastern Siberia, because 
some of these gas deposits there have high amounts of helium, 
and that requires extensive work. And so, they need access, not 
just to financing, but some of the Western technology.
    What it leads me to is--as we view this dynamic, they are 
having this debate in Moscow about, ``We are worried about 
sanctions, but we also have this group that is pushing for 
more''--and, by the way, I would guess that, despite all the 
assistance they are getting, some of these separatists probably 
feel like Moscow is not doing enough; they want them to do 
more.
    So, given all these pressures, it is my view that the best 
way to nudge it, or to influence this in the direction we would 
like to see it head, is not simply to threaten sanctions, but 
to make very clear what those sanctions would look like so that 
it is not a guessing game about what will happen if they do 
this; that, in fact, they know for a fact what it would look 
like. And I know that the ideal scenario is that if we do it, 
others will join us in it. But, my sense of it is that, 
potentially, the best way to ensure that is through American 
leadership, that if America is willing to--at least the 
American Congress is willing to graphically spell out what the 
specific consequences will be of specific actions--
automatically, not what the President may decide to do--that it 
would strengthen our hand in that regard. And I think, Mr. 
Hadley, in your testimony, you said we may be getting closer to 
that point anyway.
    So, that was the question I asked of Secretary Nuland, and 
I was hoping that you would both expand.
    And then, if time permits, I just had an issue related to 
Russia, but not directly to Ukraine. And it may seem like it is 
out of left field, but I am curious, given the amount of 
knowledge that you both have about Russia, What do you think 
their response would be, given events in Iraq that have 
happened recently, if the Syrians asked the Russians to conduct 
airstrikes in Syria against ISIL? How open would they be to 
that sort of measure?
    And that is a separate question if we have time to get to 
them. But, I really want to focus on this question of whether 
specific sanctions by Congress would further the direction of 
decisionmaking in Moscow.
    Mr. Hadley. I would make three points. One, I think your 
description of his strategy is accurate, and it is very, very 
important that it be seen to fail. Because if it succeeds, he 
will do it again elsewhere. You know, when he went into Georgia 
in 2008, we all said, ``Today Georgia, tomorrow Crimea, and the 
day after, the Baltics.'' Well, you know, he is two-thirds of 
the way there. So, one, it is important he fail.
    Two, I think it would be very useful, as I said in my 
opening comments, to have that kind of roadmap, ``If he takes 
these activities, or fails to stop what he is doing, these are 
the kind of sanctions he would face.'' I think that would be a 
useful thing.
    I would hope, though, we--as much as possible--we could 
coordinate it with the Europeans so that Angela Merkel would be 
leading the Europeans so they would follow our roadmap. That 
does not say we do not do it without them, but it will be more 
effective if we can bring them along.
    Third----
    Senator Rubio. Well, they are probably in a good mood in 
Germany after last night's game. So, we should jump on that.
    Mr. Hadley Yes, and they may be even better after the 
finals.
    Third, I will go back to what I said before, this is not 
only about sanctions. But, if we are going to be effective 
against Putin's strategy, we need the other six or seven items 
that I outlined in my statement, that are elements of a 
comprehensive, long-term approach to this problem. That is what 
we need. So, sanctions, yes; but, take a look at the other 
things, and let us be moving out on the other elements of a 
comprehensive policy.
    Dr. Brzezinski. I agree very much with Mr. Hadley.
    Senator Rubio. What is your view on, if the Syrians asked 
the Russians to conduct airstrikes against ISIL in Syria, 
whether they would do that?
    Dr. Brzezinski. Well, the first question that would come to 
my mind immediately is, Where would they stage it from? You 
know, they do not have the sea-born capability for air 
operations that we have. So, it would have to be done in some 
fashion from Russian territory.
    Senator Rubio. Or from Syrian territory that the Syrians--
--
    Dr. Brzezinski. Or--well, what facilities are really 
available for them on Syrian territory?
    Senator Rubio. Other than the seaport, that--the naval 
facility.
    Dr. Brzezinski. They would have to be secure, and they are 
probably very vulnerable, and they are probably not in very 
good shape.
    Now, would they be tempted to do it? I rather suspect not. 
I think the Russians want to avoid an entanglement with the 
whole host of issues that are being unleashed in the Middle 
East, and they much prefer us to become more entangled. And 
this is one of the reasons why I have been urging restraint in 
our part, because it seems to me that these are issues that are 
not likely to be solved entirely by the use of force. And 
certainly, we have already learned from both Afghanistan and 
Iraq, that the use of force in these very complex ethnic, 
religious, national circumstances is a very, very costly and 
unpredictable undertaking.
    Mr. Hadley. It is a murky area, and press reports say that 
Russian SU-22s, I think, are flying strikes in Iraq. That is 
press reports. And it is unclear, are they flown by Iraqi 
pilots, by Russian pilots, or Iranian pilots? This is a murky 
and confused situation.
    The Chairman. Well, thank you both for your insights and 
your expertise. It is always a tremendous value to the 
committee.
    This hearing will remain open until the close of business 
on Friday.
    And, with the thanks of the committee, this hearing is 
adjourned.
    [Whereupon, at 11:55 a.m., the hearing was adjourned.]
                              ----------                              


              Additional Material Submitted for the Record


                Response of Victoria Nuland to Question 
                    Submitted by Senator Ron Johnson

    Question. Investment bank Credit Suisse released its ``Global 
Wealth Report 2013'' October 9 that showed 35 percent of all wealth in 
Russia was controlled by 110 people. The amount is equivalent to $420 
billion, according to the bank. By contrast, billionaires around the 
world control between 1 percent and 2 percent of total wealth. The full 
report can be found here: http://www.scribd.com/doc/174860081/Global-
Wealth-Report-2013.

   Are we prepared to sanction all 110 of these individuals? 
        Which, if any, of these 110 people have already been 
        sanctioned? Of these individuals, who will be added and 
        specifically when? Why have we not immediately added all 110 
        people?

    Answer. In response to Russia's ongoing violations of Ukrainian 
sovereignty and territorial integrity, the United States has imposed 
targeted sanctions on Russian individuals and entities, as well as a 
set of carefully calibrated sanctions on Russia's financial, energy, 
and defense sectors that the President announced on July 16. Since the 
start of the Ukraine crisis, the U.S. has sanctioned 57 individuals (18 
Ukrainians, 39 Russians), six Russian banks, 14 other crony-related 
entities, eight defense firms, two Russian energy companies, separatist 
groups in Donetsk and Luhansk, and two Crimea-based energy companies 
under Executive Orders 13660, 13661, and 13662. Designated Russian 
individuals include high-ranking government officials, business 
executives, and members of the Russian leadership's inner circle. 
Broader sectoral sanctions may be deployed if Russia fails to stop 
destabilizing Ukraine.
    The President's Executive orders with regard to the situation in 
Ukraine do not, however, direct that sanctions determinations be made 
based on an individual's net worth. Though our sanctions have targeted 
some of the wealthiest Russian citizens, an individual's net worth is 
not an independent basis for a sanctions designation under Executive 
Orders 13660, 13661, and 13662.
    The United States and our international partners continue to press 
Russia to end all support to separatists in Ukraine, control the 
border, call on separatists to lay down their arms, return the border 
checkpoints, and release all remaining hostages. Until Russia takes 
these actions, the United States and our partners remain prepared to 
impose additional, tougher sanctions.

[Editor's note.--A copy of the full report mentioned above was too 
voluminous to include in the printed hearing. It will be retained in 
the permanent record of the committee.]