Bloomberg News

Putin Ban Hits Cold War Foes as Developing Nations Gain

August 07, 2014

Russia Bans Array of U.S., EU Foods in Retaliation Move

The restrictions include all cheese, fish, beef, pork, fruit, vegetables and dairy products, Prime Minister Dmitry Medvedev said today at a cabinet meeting in Moscow. Photographer: Daniel Acker/Bloomberg

President Vladimir Putin countered U.S. and European sanctions over Ukraine with a ban on a range of food products, opening the door for developing nations such as Brazil to fill the $9.5 billion hole created by the curbs.

The restrictions include all cheese, fish, beef, pork, fruit, vegetables and dairy products, Prime Minister Dmitry Medvedev told ministers today in Moscow, fulfilling a presidential decree issued yesterday. The curbs hit nations that have penalized or supported measures against Russia, including Canada, Australia and Norway. Russia may also introduce “supportive measures” for the car, shipping and aerospace industries, Medvedev said.

“The decision on retaliation wasn’t easy for us,” said Medvedev, who announced a ban on Ukrainian planes flying over Russia and a possible review of Siberian airspace use by other carriers. “But I’m sure that even under such conditions we will be able to turn the situation to our own benefit.”

Putin is facing increasing isolation over Ukraine’s pro-Russian rebellion, which ignited after he annexed Crimea in March after a referendum that the United Nations rejected in a vote of 100 to 11.

Putin has responded to intensified fighting in easternmost regions by amassing thousands of troops along the border, triggering a warning today from the North Atlantic Treaty Organization to “step back from the brink.” While condemned by Russia’s former Cold War foes, Putin’s stance on Ukraine has propelled his approval rating to an all-time high of 87 percent at home and he’s now looking for allies abroad.

Argentina, Uruguay

Russian officials called on countries including Argentina, Brazil, Iran, Israel, Morocco, Paraguay, Turkey, Uruguay and former Soviet states not in the EU to boost food exports to help fill the void. Russia imported a total of $25 billion of products on the banned list last year, $9.5 billion of which came from nations now blacklisted, according to Capital Economics Ltd. estimates.

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“Retaliating against Western companies or countries will deepen Russia’s international isolation, causing further damage to its own economy,” said Laura Lucas, a spokeswoman for the U.S. National Security Council. “We continue to call on Russia to take immediate steps to de-escalate the conflict and cease its efforts to destabilize Ukraine.”

The EU said it “regrets” the bans and may respond. “We reserve the right to take action as appropriate,” European Commission spokesman Frederic Vincent said in Brussels.

Putin’s ‘Revenge’

Waging Financial War

EU food exports to Russia rose 4.3 percent last year to 11.9 billion euros ($15.9 billion), with fresh and dried fruits accounting for 9.1 percent of the total, according to data e-mailed by the European Commission.

The country most affected by the ban is Lithuania, a former Soviet republic that is now a member of both the EU and NATO. Lithuanian exports of products to Russia that are now banned accounted for 2.5 percent of gross domestic product last year, Capital Economics economists led by Neil Shearing said in a research note.

“By seeking revenge of the West, the Kremlin’s decisions will hurt the people of Russia,” Lithuanian President Dalia Grybauskaite, an outspoken Putin critic, said on LRT radio.

Denmark, another EU member, exported about $628 million of products to Russia last year that are now banned, according to the Danish Agriculture & Food Council.

Putin said in the decree that the aim of the food restrictions is “to protect national interests.” He called on the government to boost domestic supplies with the help of producers and retailers and to avoid spurring food-price growth.

Norwegian Salmon

The Micex Index fell as much as 2.1 percent to a three-month low before rebounding to close up 0.1 percent on a report, later confirmed by Russian news service RIA Novosti, that Alexander Borodai, a separatist leader in Ukraine, planned to resign. The ruble weakened as much as 0.6 percent to 36.3767 per dollar in Moscow, its lowest level since March.

Norwegian salmon farmers including Marine Harvest ASA, the world’s largest, slumped in Oslo, with Marine Harvest, controlled by billionaire John Fredriksen, falling as much as 12 percent, the most in more than six months.

Ukraine will announce sanctions against Russia tomorrow, including measures targeting individuals and whole industries, Interfax reported, citing Justice Minister Pavlo Petrenko.

While the food ban will harm countries supplying food to Russia, “it will likely only amplify the effects of financial and sectoral sanctions imposed on Russia,” Dmitry Polevoy, an economist at ING Groep NV in Moscow, said in an e-mailed note. “This will likely add to overall sanction costs via higher food inflation and so will have a widespread effect on households.”

Russian ‘Reality’

Even before the decree, Russia’s public health regulators banned some imports from EU countries, the U.S. and Ukraine.

Russia remains at odds with the U.S. and its allies over events on the ground in Ukraine. The U.S. joined NATO and Poland in warning about the risk of Russia sending troops into its neighbor, with Russia calling reports of a military buildup on its western border “groundless.” The threat of an incursion is “reality,” U.S. Defense Secretary Chuck Hagel said in Germany.

The government in Kiev estimates Russia has deployed 45,000 soldiers, 160 tanks and 192 warplanes among other equipment along its border, including soldiers stationed in Crimea. NATO said there’s a threat of Russian troops crossing the border under the “pretext” of a humanitarian mission.

Russia denies involvement in the Ukrainian conflict.

Death Toll

Fighting between separatists and Ukrainian troops continued in the city of Donetsk, where tens of thousands of the city’s 1 million people have fled amid civilian deaths, power cuts and water shortages. Artillery was used overnight and today, killing at least seven people dying and wounding more than a dozen, the city council said on its website.

even Ukrainian soldiers have been killed and 19 wounded in the last 24 hours, Defense Ministry spokesman Andriy Lysenko told reporters in Kiev today. A cease-fire around the area the Malaysian plane went down has been called off until at least next week, the government said on its website.

In the capital, police clashed with protesters as workers began dismantling camps erected during the unrest that ousted Kremlin-backed President Viktor Yanukovych in February. Fifty policeman were injured and 10 protesters were detained, Interfax reported, citing an Interior Ministry official.

Andriy Parubiy, head of Ukraine’s National Security and Defense Council, resigned, his spokesman confirmed by phone, without giving a reason for his exit.

To contact the reporters on this story: Olga Tanas in Moscow at otanas@bloomberg.net; Volodymyr Verbyany in Kiev at vverbyany1@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net Andrew Langley, Alan Crawford


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