Joining EU, U.S. rolls out new Russia curbs

Banks, oil-industry advances targeted

President Barack Obama, speaking Tuesday at the White House, said that Russia was directly involved militarily in the conflict in Ukraine, thus “isolating itself from the international community.”
President Barack Obama, speaking Tuesday at the White House, said that Russia was directly involved militarily in the conflict in Ukraine, thus “isolating itself from the international community.”

BRUSSELS -- The European Union curbed Russia's access to bank financing and advanced technology in its widest-ranging sanctions yet over President Vladimir Putin's backing of separatist rebels in eastern Ukraine. The European move was followed hours later by new sanctions from the U.S.


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EU governments agreed Tuesday in Brussels to bar state-owned banks from selling shares or bonds in Europe and restricted the export of equipment to modernize the oil industry, a key prop for Russia's economy, the EU said in a statement. New contracts to sell arms to Russia and the export of machinery, electronics and other civilian products with military uses also will be banned.

"The package of new restrictive measures agreed today by the European Union constitutes a powerful signal to the leaders of the Russian Federation: destabilizing Ukraine, or any other eastern European neighboring state, will bring heavy costs to its economy," EU President Herman Von Rompuy said in a statement. "Russia will find itself increasingly isolated by its own actions."

Later Tuesday, the U.S. sanctioned three Russian banks and a state-owned shipbuilder that serves Russia's navy and oil and gas industry.

"Today is a reminder that the United States means what it says, and we will rally the international community in standing up for the rights and freedom of people around the world," President Barack Obama said at the White House.

Obama said Putin's government had gone beyond past support for the pro-Russia separatists fighting the central Ukrainian government in Kiev and was now directly participating in the conflict by firing artillery across the border, transporting more military equipment to the rebels and massing its own troops.

"In other words, today Russia is once again isolating itself from the international community setting back decades of genuine progress," he said. "And it doesn't have to come to this. It didn't have to come to this. It doesn't have to be this way. This is a choice that Russia and President Putin in particular has made."

Secretary of State John Kerry on Tuesday cited "clear evidence" of Russian military support to the separatists, including rocket and artillery fire from Russia into Ukraine.

"The Russians and their so-called volunteers are continuing to ship arms and funds and personnel across the border," Kerry said in Washington after meeting Ukrainian Foreign Minister Pavlo Klimkin. "While the Russians have said they want to de-escalate the conflict, their actions have not shown a shred of evidence that they really have the legitimate desire to end the violence."

Russia said Foreign Minister Sergey Lavrov, who spoke to Kerry on Tuesday, had urged Kerry to persuade the Ukrainian government to declare a cease-fire. But Kerry said it was the separatists who have refused to lay down their arms and try to find a political solution to the war.

Despite assertions by Kerry and Obama of Russian involvement in the fighting -- which Russia has denied -- Obama suggested he was not considering providing arms to Ukraine's government, as some Republicans have urged.

"They are better armed than the separatists," he said. "The issue is how do we prevent bloodshed in eastern Ukraine. We're trying to avoid that. And the main tool that we have to influence Russian behavior at this point is the impact that it's having on its economy."

The new U.S. sanctions target VTB Bank, Bank of Moscow and the Russian Agricultural Bank. United Shipbuilding Corp., which has contracts with the Russian military, also was sanctioned. The U.S. also is suspending credits that encourage exports to Russia and prohibiting export of certain goods to the energy sector.

Full details of the new European sanctions were not expected to be published until later in the week, but the European Union issued a fact sheet Tuesday afternoon outlining the main points. The new EU package will "track pretty closely" with sanctions imposed by the U.S., White House spokesman Josh Earnest said in Washington.

The EU sanctions will initially last for 12 months, though they'll be reviewed by the end of October, according to an EU official speaking on condition of anonymity. It would need unanimity from all 28 members of the bloc to scrap the measures before the 12 months are up.

Because of the reliance of many European countries on Russian oil and natural gas, the EU stopped short of full-scale commercial warfare that could damage its own economy, which is still shaking off the euro debt crisis. The calibrated blockade risked retaliation by Putin against European and U.S. companies active in the $2 trillion economy.

Until now, the EU had blacklisted 87 people and 20 companies and groups accused of engineering Russia's annexation of Crimea in March and the subsequent infiltration of eastern Ukraine. The bloc decided Monday to extend the blacklist to cover eight more people, including four Putin confidants, and three organizations, EU officials said. Those names are expected to be released late today.

EU attitudes were hardened by the Malaysia Air disaster, which killed all 298 people aboard, the bulk from the Netherlands. A key U.S. and EU demand is unfettered access to the rebel-controlled crash site. Dutch forensic workers have been unable to reach the location because of fighting in the area.

Russia's state-owned banks and development banks, which often raise money in Western financial markets, are a principal target of the new measures. The sanctions bar European banks or individual investors from buying or trading in new bonds or securities issued by those banks with a maturity longer than 90 days.

The EU sanctions also impose an embargo on new sales of arms to Russia, or dual-use goods -- those with both civilian and military uses -- to Russian military buyers. Existing deals, like the French contract to supply Russia with warships, would not be affected, diplomats said.

Moreover, sales of certain kinds of technology for oil production and exploration in deep water, in shale deposits and in the Arctic would be barred. The EU sanctions do not affect equipment and technology for natural gas, a sensitive sector because several European nations depend heavily on gas supplies from Russia.

Russian Energy Ministry spokesman Olga Golant declined to comment.

Though the Western allies appeared united over the necessity of confronting Putin more directly, there were immediate signs of concern that new sanctions could boomerang on European countries, whose economies have closer ties to Russia than the United States does.

In London, the oil giant BP, which owns 19.75 percent of the Russian state oil company Rosneft, warned investors bluntly before the approval of the sanctions Tuesday that "any future erosion of our relationship with Rosneft, or the impact of further economic sanctions, could adversely impact our business and strategic objectives in Russia, the level of our income, production and reserves, our investment in Rosneft and our reputation." BP is the largest foreign investor in Russia.

The European sanctions are expected to affect a wide range of other European companies, including banks in Vienna, industrial equipment makers in Germany and automakers and parts suppliers across the continent. The German Engineering Federation, which represents makers of machine tools and other equipment, said Tuesday that sales to Russia were down 20 percent in the first five months of 2014, compared with the same period in 2013.

"Merely the threat of sanctions has led to German machinery makers missing out on contracts," the organization said in a statement that spoke of "longtime supplier relationships and mutual trust" being destroyed.

However, analysts said the measures are expected to hit Russia more severely than Europe, especially the restrictions on Russian banks' ability to raise money in Europe and the United States.

"These sanctions can have quite a substantial chilling effect on the Russian economy," said Adam Slater, a senior economist at Oxford Economics in London. "That is probably a quite effective way to put pressure on Russia."

Kerry said the West would continue to impose sanctions "if that is what we must do," though he called once again for Russia to persuade the separatists in Ukraine to agree to a cease-fire "now, not in the future" and reach a peace agreement that would make sanctions unnecessary.

"If Russia continues to go down this path, however, Russia will leave the international community with no choice," Kerry said.

Information for this article was contributed by James G. Neuger, Jonathan Stearns, Arne Delfs, Rainer Buergin, Gregory Viscusi, Andrew Frye, Jonathan Ferro, Mark Barton, John Fraher, Daria Marchak, Margaret Talev, Angela Greiling Keane, Kasia Klimasinka, Jeanna Smialek and Nicole Gaouette of Bloomberg News; by Peter Baker, Alan Cowell, James Kanter and Jack Ewing of The New York Times; and by Lara Jakes of The Associated Press.

A Section on 07/30/2014

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