Bloomberg News

Russia Pressed on Ukraine as EU Joins U.S. on Sanctions

March 21, 2014

President Vladimir Putin and Arkady Rotenberg

Those targeted by the U.S. yesterday include Arkady Rotenberg, a former judo partner of Putin whose companies won more than $7 billion of contracts for the Winter Olympics. Photographer: Sasha Mordovets/Getty Images

The European Union followed the U.S. in intensifying sanctions against Russian President Vladimir Putin’s inner circle to pressure his government to defuse the global standoff over Ukraine.

EU leaders added 12 names to their list of Russians and Ukrainians punished with asset freezes and travel bans. The bloc acted a day after the U.S. penalized 20 Russian officials and business leaders as having ties to Putin.

With Russia on the verge of annexing Crimea and massing troops near Ukraine’s eastern border, the U.S. and the EU are moving to coordinate their response as they press Putin to back down. The crisis marks the worst confrontation between the West and Russia since the Cold War ended more than two decades ago.

Full Coverage of the Crisis in Ukraine:

  • Putin Clears Crimea Annexation as Ukraine Signs Pact
  • Wall Street’s Ties to Putin Threatened as Sanctions Bite
  • Graphic: Sanctions Hit Russian Officials, Putin Allies

“The goal is not sanctions, the goal is to get Mr. Putin to the negotiating table,” EU Financial Services Commissioner Michel Barnier said today in interview on broadcaster France 2.

Western nations are signaling that Russia will face further repercussions if it fails to yield. The EU, Russia’s biggest trading partner, said today it would consider “targeted” curbs on business and investment. A separate order signed by Obama yesterday authorized potential future penalties on sectors of the Russian economy, including financial services, energy, metals and mining, defense and engineering.

Crimea Response

“We’re taking these steps as part of our response to what Russia has already done in Crimea,” President Barack Obama said at the White House yesterday. “We’ve been working closely with our European partners to develop more severe actions that could be taken if Russia continues to escalate the situation.”

A Snapshot of Ukraine's Past and Future

European leaders vowed to wean the EU off oil and gas imports from Russia, echoing a pledge made in 2008 after Russia invaded another neighbor, Georgia. The bloc relied on Russian suppliers for almost 32 percent of its gas imports and 35 percent of its oil imports in 2010, according to EU data.

This time, the leaders set a mid-year deadline for crafting a “comprehensive” plan to diversify energy sources away from Russia. Poland, which relies on Russian gas monopoly OAO Gazprom for about two-thirds of its consumption, wants a strategy to increase the bloc’s bargaining power.

The EU also canceled a planned summit with Putin in Sochi, the Winter Olympics site, in June.

Frustrated Response

Russia will respond with retaliatory measures, as “unanswered sanctions may whet appetites to impose new measures,” against specific sectors of Russian economy, Deputy Foreign Minister Grigory Karasin said today at a Federation Council meeting shown on state-run Rossiya 24 television.

Graphic: Mapping the Ukraine Conflict

Special trading relationships that several European countries have with Russia, coupled with fallout from the debt crisis that came close to wrecking the euro, are frustrating a tougher EU response. Sanctions require the agreement of all EU governments, a consensus-building process that can’t match Putin’s speed in mobilizing troops, staging the March 16 secession referendum in Crimea and moving toward annexation.

The EU will announce the names of its new targets later today or tomorrow. The move brings to 51 the number of Russian and Ukrainian politicians and military commanders penalized by the bloc. The U.S. action added to the seven Russian officials and four people from Ukraine already hit by American sanctions.

Inner Circle

Those targeted by the U.S. yesterday include billionaire Gennady Timchenko, a co-founder of oil trader Gunvor Group Ltd., and Arkady Rotenberg, a former judo partner of Putin whose companies won more than $7 billion of contracts for the Winter Olympics.

It also includes Bank Rossiya in St. Petersburg, which U.S. officials said has $10 billion in assets and is the 17th largest bank in Russia. The bank said today that U.S. payment-systems operators MasterCard Inc. and Visa Inc. stopped servicing its cards “without any warning.”

Graphic: What Crimea Is Costing Putin

The U.S. sanctions, based on an order issued by Obama March 17, ban the individuals’ entry, freeze any personal assets they may have in the U.S. and bar them from doing business with any U.S. company or financial institution.

Edward J. Krauland, a partner at the law firm Steptoe & Johnson who’s a specialist on international sanctions, said targeting individuals probably won’t have a big an impact on Russia’s actions. Hitting Russian economic sectors would.

Escalation Risks

“I don’t even think if they targeted Putin it would bring Mr. Putin to the table,” Krauland said. “If you can isolate particular sectors of a country’s economy that are significant, disproportionate parts of the economy, you’re going to impose a hurt on that country.”

Russian stocks and government bonds retreated. The Micex Index dropped 3 percent to 1,281.53 by 10:29 a.m. in Moscow. The yield on Russian government bonds due February 2027 jumped the most in a week, rising 25 basis points, or 0.25 percentage point, to 9.55 percent.

Fitch Ratings said today it revised Russia’s outlook to negative, citing the potential impact of sanctions on the economy while affirming the country’s rating at BBB. Standard & Poor’s yesterday cut its outlook for Russia to negative because of the risks posed by the conflict, affirming Russia’s credit rated at BBB, the second-lowest investment grade.

Border Exercises

Tensions continue to rise in the region. The Ukrainian government in Kiev plans to reinforce its eastern border with Russia and withdraw troops from Crimea, ceding control of the Black Sea peninsula. Obama said yesterday Russia’s continuing military movements carry “dangerous risks of escalation.”

Some U.S. intelligence officials who have observed Russian military exercises on Ukraine’s eastern border are increasingly concerned that Putin may not stop at Crimea. Russia appears to be sending plainclothes operatives into eastern cities such as Kharkiv and Donetsk, said two officials, who spoke on condition of anonymity to discuss intelligence matters.

Russian Defense Minister Sergei Shoigu told U.S. Defense Secretary Chuck Hagel by phone that Russia has put troops along the border only for military exercises, Rear Admiral John Kirby, Hagel’s spokesman, said at a media briefing.

Ukrainian Prime Minister Arseniy Yatsenyuk warned that any Russian attempt to annex additional Ukrainian territory would be met by an “appropriate response, including military force,” according to remarks posted on a government website.

EU Accord

Today, the EU will sign the political provisions of a trade agreement with the Kiev government, a step toward binding Ukraine into the European market. EU-Ukraine trade ties were at the heart of protests in Kiev that ousted the pro-Kremlin government led by Viktor Yanukovych that favored joining Russia’s planned Eurasian economic union instead.

In Moscow, the upper house of parliament is set to vote today on measures to seal the annexation of Crimea. Lawmakers in the lower house yesterday ratified the treaty Putin signed March 18 authorizing the region’s accession to Russia.

Kremlin spokesman Dmitry Peskov said yesterday that Russia was surprised by some of the names on the latest U.S. list, and considers the use of sanctions unacceptable. It’s not true that Putin is an investor in Gunvor as the U.S. alleges, he said.

In retaliation for the new U.S. sanctions, the Russian government barred entry of nine U.S. officials, including House Speaker John Boehner and Senate Foreign Relations Committee Chairman Robert Menendez.

“The speaker is proud to be included on a list of those willing to stand against Putin’s aggression,” Boehner’s spokesman, Michael Steel, said in an e-mail.

To contact the reporters on this story: Roger Runningen in Washington at rrunningen@bloomberg.net; James G. Neuger in Brussels at jneuger@bloomberg.net; Gregory Viscusi in Paris at gviscusi@bloomberg.net

To contact the editors responsible for this story: Steven Komarow at skomarow1@bloomberg.net; Alan Crawford at acrawford6@bloomberg.net Michael Winfrey, Andrea Dudik


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