How Ukraine’s president felt about Biden’s Russia sanctions speech

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Ukrainian President Volodymyr Zelensky sees President Biden’s announcement of tougher sanctions against Russia as “a powerful first step” — though he’s not starry-eyed about them changing Vladimir Putin’s calculus, people close to Zelensky tell Axios.

Why it matters: Zelensky has previously criticized Biden for being too soft on the Russian president. This included an extraordinary interview with Axios in June that infuriated the administration and strained the bilateral relationship.

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  • But a source close to the Ukrainian president branded the sanctions Biden announced Tuesday “a powerful first step” — especially with the U.S. signaling it will drastically ratchet up the pressure if Putin escalates.

  • “There’ll be a huge economic catastrophe for Russia as he goes forward,” the source said.

Behind the scenes: For the moment, at least, Zelensky and his team say he’s not considering relocating from the capital Kyiv to Lviv, in western Ukraine, to protect himself against a potentially catastrophic Russian invasion.

  • “The president will not be running away from his own capital,” the source close to Zelensky said.

  • But the mood in Kyiv is “much more nervous than it was even 48 hours ago,” the source said. “So far … [there’s] still hope that the worst can be averted, but it’s much more nervous than it was a day or two ago.”

  • A second source close to the Ukrainian government told Axios they feel they’ve “done everything they can to prepare” for what comes next, and suggestions Kyiv is downplaying the threat of a large-scale invasion should not be conflated with lack of readiness.

Driving the news: Biden’s “first tranche” of sanctions targets two large financial institutions — VEB and PSB, which together hold more than $80 billion in assets and provide financing for the Kremlin and Russian military.

  • The U.S. and the European Union also imposed new restrictions on Russian sovereign debt, effectively blocking the Kremlin from raising money or trading new debt on Western markets.

  • Sanctions on Russian elites and their family members also will be rolled out in the coming days.

What they’re saying: “The world must respond with all its economic might to punish Russia for the crimes it has already committed and ahead of the crimes it plans to commit. Hit Russia’s economy now and hit it hard,” Ukrainian Foreign Minister Dmytro Kuleba said Tuesday during a press conference with Secretary of State Antony Blinken.

  • He welcomed the tougher sanctions after admitting Kyiv was “puzzled” by the mostly symbolic measures announced Monday, and said the strategy of imposing sanctions in waves “can work” if it continues in a “sustainable” fashion.

  • “President Putin should not have a single minute where he starts to think that the pressure reached its ceiling and he will not be punished anymore,” Kuleba stressed.

Between the lines: The source in contact with Ukrainian ministers said Kyiv was pleasantly surprised by the inclusion of VEB — which marked the first time a major state-owned Russian bank has been hit with the toughest “full-blocking” sanctions.

  • But the source called it “an empirical fact” the Biden administration’s approach has thus far not deterred Putin.

  • Ukraine also remains skeptical this tranche of sanctions will change Putin’s “cost-benefit calculus,” the source said.

What to watch: “No Russian financial institution is safe if this invasion proceeds,” a senior U.S. official stressed during a briefing call.

  • “We are ready to press a button to take further action on the very largest Russian financial institutions, including Sberbank and VTB, which collectively hold almost $750 billion in assets — more than half the total in Russia as a whole.”

  • The official also said export controls on critical technologies and other steps remain in the U.S. arsenal if Putin further escalates.

  • It also will be telling if Russia seeks an off-ramp through renewed diplomacy with Biden and Blinken — who scuttled a planned meeting with Russian Foreign Minister Sergey Lavrov that had been set for Thursday.

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