Europe

Europe Gets Serious in Latest Round of Russia Sanctions


For once, it’s the U.S. that’s following the European Union in issuing new sanctions on Russia in retaliation for its role in stoking violence in Ukraine. Even though it was only a matter of hours between Europe’s leaders revealing their harshest round of penalties yet and President Obama announcing the U.S. moves, the message is clear: Europe is getting serious about Russia’s continued provocations.

The new sanctions target the Russian finance, defense, and energy industries, building on the ones the U.S. announced 12 days ago when it added some of Russia’s biggest and most important institutions to its Ukraine-related sanctions list (PDF). Russian state-owned banks are now barred from selling shares or bonds in Europe. Companies in Europe can no longer export equipment aimed at modernizing Russia’s oil industry, nor can they sell arms to Russia, or export any other equipment with military uses. The French are finalizing a deal to sell helicopter warships to Russia’s navy, and that deal will apparently go forward despite the new limits on European trade.

U.S. sanctions again aimed at isolating Russia’s banking sector. Two weeks ago the U.S. cut off Gazprombank, the finance arm of Russia’s largest natural gas company, and Vnesheconombank, the state economic development bank, from seeking medium- and long-term loans from U.S. capital markets. This time the targets included VTB Bank (VTBR:RU), Bank of Moscow (MMBM:RU), and the Russian Agricultural Bank. In a move that is particularly personal for Russian President Vladimir Putin, the U.S. also sanctioned United Shipbuilding, a state-owned company that Putin himself started in 2007 and which has contracts with the Russian military.

The EU has always had the bigger stick to swing against Russia, largely because it’s just a bigger trade partner with the country. About 7 percent of all EU exports go to Russia, while 12 percent of its imports come from there. Most of that is the natural gas the EU buys, almost all of which has to pass through Ukraine. Only about 1 percent of U.S. imports and exports are Russian.

The announcements come less than two weeks after a Malaysia Airlines flight was shot down over eastern Ukraine, killing all 298 people on board. The initial hope was that the crash would prompt Russia to pull back from Ukraine and stop supporting the separatists there. But the Obama administration says the opposite has happened: Russia has upped its role there, providing more support for the rebels and (according to satellite images) even launching artillery strikes into Ukraine.

An hour before President Obama announced the new sanctions, Ukraine’s foreign minister, Pavlo Klimkin, appeared at an event in Washington hosted by the Atlantic Council. During a talk that lasted about 40 minutes and a brief press conference that followed, Klimkin discussed the situation in Ukraine and the talks he’s had while in Washington with Vice President Joe Biden and Secretary of State John Kerry.

Klimkin repeatedly referenced the future path for Ukraine as being “democratic and European.” Klimkin called the violence in Ukraine the worst security threat facing the world since the Cuban missile crisis in 1962. He stressed that the rebels in eastern Ukraine are being led and trained by a number of mainly Russian citizens with links to Russian special forces. “It is essentially an undeclared war.”

Philips_190
Philips is an associate editor for Bloomberg Businessweek in Washington. Follow him on Twitter @matthewaphilips.

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