Bloomberg News

Trade Curb on Crimea-Based Oil Company Adds to U.S. Sanctions

April 12, 2014

The U.S. moved to keep American exporters from shipping goods to a company based in Crimea, further curbing trade with Russia in the biggest standoff between the Cold War adversaries in decades.

The Commerce Department said yesterday that it placed the oil and gas company Chernomorneftegaz on its “Entity List,” which requires U.S. exporters to have a special license to ship goods to the foreign recipient. In a related action, the Treasury Department sanctioned the company and seven individuals the U.S. blames for undermining democracy in Ukraine.

The move “sends a strong message of the United States government’s condemnation of Russia’s incursion into Ukraine and expropriation of Ukrainian assets,” Under Secretary of Commerce Eric Hirschhorn said in a statement.

President Barack Obama’s administration has taken steps to punish Russia after it annexed Crimea from Ukraine last month, including limiting travel and freezing assets of some people and putting a hold on the processing of permits for exports that may have a military use. The Commerce Department action shows that the U.S. is willing to act against companies that operate in the occupied region, as well as in Russia proper.

Those “who have asserted governmental authority in the Crimean region without the authorization of the government of Ukraine threaten the national security and foreign policy of the United States,” the Commerce Department’s Bureau of Industry and Security said in the statement.

Russian Response

Yevgeniy Khorishko, a spokesman for the Russian Embassy in Washington, said in an e-mail that Russian President Vladimir Putin and Foreign Minister Sergei Lavrov “have already expressed multiple times Russia’s attitude to the sanctions.”

He provided a copy of an April 10 article from Russia’s state-run Itar-Tass news service, which quoted Igor Shuvalov, the nation’s first deputy prime minister, saying Russia “will adequately respond to sanctions of the West, if need be.”

The Ukraine crisis is dominating discussions at the spring meetings of the International Monetary Fund and World Bank that are being held in Washington this weekend. U.S. Treasury Secretary Jacob J. Lew said yesterday there’s strong support among Group of Seven nations for penalizing Russia.

Lew said that the sanctions announced last month are having a “real effect” on Russia’s economy, citing declines in Russian market valuations. Russia’s benchmark Micex Index (INDEXCF), which slipped 0.4 percent to 1,362.40 in Moscow yesterday, is down 9.4 percent for the year. The ruble is down 7.7 percent against the dollar this year, the second-worst performance among 24 emerging-market currencies tracked by Bloomberg.

Ministers’ Meeting

Tensions remain high with Russian forces massed along Ukraine’s eastern border, stirring concerns that Putin may intervene on behalf of Russian speakers other parts of Ukrainian territory. The U.S. and its allies in Europe have urged Russia to pull back its troops to help ease tensions and warned of further penalties if it escalates the situation.

Foreign ministers from the U.S., European Union, Russia and Ukraine will meet on April 17 in Geneva for talks, German government deputy spokeswoman Christiane Wirtz told a briefing in Berlin.

Lavrov spoke yesterday with U.S. Secretary of State John Kerry and urged the American side to use its influence to help avert the use of force in Ukraine and facilitate dialogue between the central government and representatives of the country’s southeast, according to a statement from the ministry.

Assets Seized

Crimea voted March 16 to join Russia as Russian troops maintained a visible presence in the territory. The Obama administration hasn’t accepted the annexation of the peninsula, home to Russia’s Black Sea fleet.

Chernomorneftegaz, also known as Chornomornaftogaz and NJSC Chornomornaftogaz, is a regional oil and gas company in Crimea and a subsidiary of the Ukrainian company Naftogaz, the Commerce Department said. Its assets were seized by the Crimean parliament and are now being overseen by Russian government interests, according to the department.

The U.S. Treasury Department yesterday imposed sanctions on Chernomorneftegaz, six Crimean separatist leaders and a former Ukrainian official. The U.S. moves apply only to the Crimean entity and don’t include the parent company.

The individuals helped to undermine democracy in Ukraine, and the company, which has drilling rigs in the Black Sea and the Sea of Azov, was complicit in misappropriating Ukraine’s state assets, according to a Treasury Department statement.

“Crimea is occupied territory,” David Cohen, the Treasury Department’s under secretary for terrorism and financial intelligence, said in the statement. “We will continue to impose costs on those involved in ongoing violations of Ukraine’s sovereignty and territorial integrity.”

To contact the reporter on this story: Brian Wingfield in Washington at bwingfield3@bloomberg.net

To contact the editors responsible for this story: Jon Morgan at jmorgan97@bloomberg.net Michael Shepard


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