Bloomberg News

EU Joins U.S. With New Sanctions on Russia Over Ukraine

April 29, 2014

OAO Rosneft President Igor Sechin

Igor Sechin, president of OAO Rosneft. Photographer: Andrey Rudakov/Bloomberg

The European Union widened sanctions against Russia for its actions in Ukraine, following similar steps yesterday by the U.S., which called separatist violence in the country’s east “terrorism, pure and simple.”

The EU added Russian Deputy Premier Dmitry Kozak to a list of people facing travel bans and asset freezes along with others including pro-Russian separatist leaders, according to a statement today in the EU’s Official Journal. The U.S. targeted seven people, including Kozak and Igor Sechin, head of oil giant OAO Rosneft (ROSN), and 17 companies yesterday linked to allies of President Vladimir Putin, such as InvestCapitalBank.

The EU and the U.S. say Russia hasn’t lived up to an accord signed April 17 in Geneva intended to defuse the confrontation between the Ukrainian government and separatists supported by the authorities in Moscow. They’ve both warned that they’ll levy penalties on Russian industries if Putin escalates by sending troops into Ukraine.

“We’re in this for the long haul,” said Gary Hufbauer, an economist and sanctions specialist at the Peterson Institute for International Economics in Washington who predicts U.S. and EU measures will continue to “dribble out” to allow for a diplomatic solution. “From Putin’s standpoint, it could go for the next two years. He’s got staying power on this; whether the West has staying power, we don’t know.”

Market Cheer

Russian markets rallied after the penalties. The Micex Index (INDEXCF) advanced 0.9 percent as of 6 p.m. in Moscow after snapping a five-day losing streak to end 1.5 percent higher yesterday. The ruble strengthened for a second day with a 0.3 percent gain against its basket of euros and dollars. Rosneft, which isn’t a sanction target, rose 2.4 percent after hitting a 10-month low yesterday.

The EU action is “a relatively weak step compared to what’s happening on the ground in Ukraine,” Jan Techau, head of the Brussels office of the Carnegie Endowment, said by phone. “It’s really quite a timid response. It reeks of compromise.”

Financial Warfare: an Alternative to Military Force

The bloc said yesterday that the people on the list are “responsible for actions which undermine or threaten the territorial integrity, sovereignty and independence of Ukraine.” The latest names, which also include Valery Gerasimov, chief of the general staff of Russia’s armed forces, and Igor Sergun, head of the main intelligence directorate, brings the number of people blacklisted to 70.

Kozak, 55, is overseeing the development of Crimea, the Black Sea peninsula that Russia annexed from Ukraine.

‘Advanced’ Preparations

EU preparations for “stage three” measures that would affect broader sectors of the Russian economy are “very advanced,” Maja Kocijancic, spokeswoman for European foreign-affairs chief Catherine Ashton, said yesterday in Brussels.

“The shift toward tier three would be in the event of a very, very serious escalation of the type that you might associate with direct military invasions,” Jean-Christophe Gray, spokesman for U.K. Premier David Cameron, said in London.

The U.S. remains prepared to impose further sanctions if Russia doesn’t cease its “illegal intervention and actions in Ukraine,” U.S. Attorney General Eric Holder said today at a news conference in London about stolen Ukrainian assets.

U.S. companies are prohibited from doing business with individuals and entities on the sanctions list, and all assets of those designated that are within the U.S. jurisdiction must be frozen, according to the U.S. Treasury.

U.S. Condemnation

The U.S. and its allies blame Russia for stoking the conflict in Ukraine that led to Russia’s annexation of Crimea and the seizure of government buildings in eastern Ukraine. The North Atlantic Treaty Organization says Putin has massed about 40,000 troops on Ukraine’s border.

In the eastern Ukrainian city of Luhansk, hundreds of activists carrying sticks and waving Russian flags stormed the regional administration building today and disarmed police. With gunshots sounding, the city’s police chief quit over the protesters’ demands, news service Interfax reported.

After international military observers were abducted by pro-Russian militants in the eastern town of Slovyansk last week, Russia’s Foreign Ministry said today in a statement that it’s taking “practical steps” to secure their release.

The separatists said Ukrainian authorities hadn’t contacted them about the hostages’ release, the Donetsk militia commander, Igor Strelkov, told Russian state TV.

‘Terrorism’ Charge

The U.S. condemned “the separatists’ taking of hostages, both Ukrainians and international monitors, some of whom have been brutally beaten,” the U.S. Embassy in Kiev said in a statement today. “This is terrorism, pure and simple.”

U.S. Air Force General Philip Breedlove, top military commander for the North Atlantic Treaty Organization, said his intelligence showed “highly organized, highly supported forces in place” in eastern Ukraine and movements of Russian troops the border “would serve to continue the readiness of this force to do its mission, if it was asked to do its mission.”

In Kharkiv, Ukraine’s second-largest city, mayor Gennady Kernes was shot in the back yesterday while riding his bike. Kernes, a former supporter of ousted President Viktor Yanukovych who once backed separatism, is in stable condition after an operation in a Haifa hospital, Israel’s Haaretz reported today.

Putin Insiders

Most companies on yesterday’s U.S. list are tied to Gennady Timchenko or brothers Arkady and Boris Rotenberg, who were placed on a sanctions list on March 20. They include the Volga Group, controlled by Timchenko, and InvestCapitalBank and SMP Bank, which are controlled by the Rotenbergs.

One of the most prominent individuals on the list is Sechin, 53, a Putin colleague at the St. Petersburg mayor’s office before rising to become head of state-run Rosneft. Over the past decade he’s built it into the world’s largest publicly traded oil company by output and reserves.

Rosneft, in which British oil company BP Plc (BP/) owns 20 percent, isn’t being sanctioned. It also has exploration projects with other international oil producers, including a venture with Exxon Mobil Corp. (XOM:US) to drill a multibillion-barrel prospect in Russia’s section of the Arctic Ocean.

The EU has been reluctant to impose broader sanctions because of the potential harm to its member states, which rely on Russia for energy imports. Germany, Europe’s largest economy, had $89 billion in trade with Russia in 2012.

Retaliatory Measures

Russia is preparing retaliatory measures in response to the latest round of EU and U.S. sanctions, Federation Council speaker Valentina Matviyenko said today, Interfax reported.

“Such unfriendly attacks, imposed unilaterally against Russia without reason, can’t be left without a response,” she said, according to the news service.

The standoff has squeezed Russia’s economy. The ruble has lost 7.6 percent against the dollar in 2014 and the Micex has dropped 12.7 percent. Standard & Poor’s lowered Russia’s credit rating last week to BBB- and the central bank unexpectedly raised its key interest rate by 50 basis points to 7.5 percent.

Ukrainian Premier Arseniy Yatsenyuk said today that the nation’s regions will be granted more autonomy, with lawmakers to agree on a new constitution by May 25, the date of presidential elections. The proposed changes would strip the president of the power to appoint regional governors, he said.

To contact the reporters on this story: Jonathan Stearns in Brussels at jstearns2@bloomberg.net; Roger Runningen in Washington at rrunningen@bloomberg.net; Volodymyr Verbyany in Kiev at vverbyany1@bloomberg.net

To contact the editors responsible for this story: Steven Komarow at skomarow1@bloomberg.net; James M. Gomez at jagomez@bloomberg.net Michael Winfrey, Paul Abelsky


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