Bush administration yanks Russia nuclear pact

U.S. President George W. Bush speaks about volunteerism on the South Lawn of the White House in Washington September 8, 2008.

WASHINGTON (Reuters) - President George W. Bush on Monday froze a lucrative civilian nuclear pact with Russia, the first big penalty imposed on Moscow after its war with Georgia but one that can be reversed.

"The president intends to notify Congress that he has today rescinded his prior determination regarding the U.S.-Russia agreement for peaceful nuclear cooperation, the so-called 1-2-3 Agreement," Secretary of State Condoleezza Rice said in a statement read by spokesman Sean McCormack.

While Bush's decision to withdraw the agreement from congressional review was seen as punitive, it was also meant to preserve the deal, a senior U.S. official said.

That official said the administration wanted to ensure the accord did not go to a vote in Congress, where it could have been rejected following Russia's military action in Georgia. If rejected, it would be difficult for a new presidential administration to pursue the agreement in the future.

"It (the nuclear accord) was likely to be killed simply as a protest in the Senate and so therefore what we are doing is rescinding the certificate that he (President Bush) had to give due to the situation in Georgia. Thus he is rendering this thing not legislatively viable," said the senior U.S. official, who spoke on condition of anonymity.

"It is something that we can reverse at any time either by sending a new certificate or lifting this action," he added. "What it does is freezes the status of it."

Bush or a future president could resubmit it for consideration by Congress, which would have 90 legislative days to block it.

Rice also made clear the decision could be reversed.

"We make this decision with regret. Unfortunately given the current environment the time is not right for this agreement. We will reevaluate the situation at a later date as we follow developments closely," her statement said.

In Moscow, a nuclear official also said it was the only way to save the deal and the White House had explained this.

"We have recently received a letter from the White House where they mentioned that this was the only way to save this agreement for the new administration," the official said.

"Otherwise the agreement would be definitely blocked in the current political conditions which would have meant practically starting the entire work from the beginning again," the source said.

The deal was aimed at lifting Cold War limits on trade and opening the U.S. civilian nuclear market and Russia's uranium fields to companies from both countries. Lawmakers in Congress had already raised concerns about it before the Georgia war.

The collapse of the deal is the first tangible penalty Washington has imposed on Russia after its war with Georgia over the two breakaway regions of South Ossetia and Abkhazia, which are closely allied with Moscow.

Georgia tried to retake control of South Ossetia in early August but its troops were quickly repelled by Russian forces. In the battle, Moscow's troops drove deep into Georgian territory, drawing international condemnations.

Despite agreeing to a French-brokered ceasefire, Moscow has kept troops on Georgian soil, saying its remaining forces were peacekeepers allowed by the pact to stay behind.

Washington has been considering a range of penalties to impose on Russia, including sanctions, but U.S. business interests have warned the White House not to go too far with punishment for fear of damaging long-term ties.

(Additional reporting by David Alexander and Jeremy Pelofsky)