Tornado Alley (PROG)

[StephanieVanbryce]

U.S. and European Sanctions Take Aim at Putin’s Economic Efforts

By PETER BAKER and ANDREW HIGGINSSEPT. 12, 2014

WASHINGTON — The United States and the European Union dealt a blow on Friday to Russian efforts to develop future oil sources in the Arctic and elsewhere, broadening and deepening the range of sanctions imposed on Moscow in retaliation for its intervention in Ukraine despite the potential cost to Western firms like Exxon Mobil and BP.

The new measures also placed further limits on access to American and European capital markets, making it harder for Russian banks to obtain any credit in foreign capitals beyond short-term loans. The United States singled out Russia’s largest bank, Sberbank, for the first time.

Previous sanctions barred Western companies from providing high technology for Russian deep water, Arctic and shale exploration, but the new measures announced by the United States on Friday also prohibit the export of goods and services in support of exploration or production in those areas.

The American measures apply not just to future contracts but to existing interactions, and the Treasury Department gave American firms until Sept. 26 to wind down any current activities. The European Union, by contrast, did not apply the new restrictions to existing projects.

The Europeans also banned travel by and froze the assets of 24 more individuals, including Russian lawmakers and others who have supported President Vladimir V. Putin over Ukraine, while the Americans blocked the assets of five Russian state-owned defense technology firms.

Also targeted was the Russian military conglomerate Rostec and its leadership, as its subsidiary plans to build energy plants in Crimea, the autonomous Ukrainian region that was annexed by Moscow this year in an action still rejected by the outside world.

The cumulative impact of the measures was to take aim at the heart of Mr. Putin’s project to reshape and revive Russia’s flagging economy through the development of Chinese-style state capitalism. The sanctions targeted a raft of financial, defense and industrial companies in the vanguard of Mr. Putin’s push to replace the wild free-market capitalism of the 1990s with state-led development.

The measures were enacted despite a fragile cease-fire between pro-Russian rebels and Ukrainian government forces that took effect last week in eastern Ukraine, and officials on both sides of the Atlantic emphasized that they could be rolled back if Russia took more significant steps to settle the violent dispute there.

European Union officials plan to review their sanctions before the end of the month and could revise them if the peace holds.

European leaders agreed on the sanctions last month but held off amid calls by some countries to see how the cease-fire played out. But the European Council, a body representing the leaders of European Union member nations, said in a notice in its Official Journal announcing the measures on Friday, that it “considers it appropriate to take further restrictive measures in response to Russia’s action destabilizing the situation in Ukraine.”
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In Moscow on Friday, the main stock market index, the Micex, rose 2.1 percent as details of the European measures became public. The index lost ground later in the day and closed up 0.6 percent, but that was before the tougher American measures were announced.

Addressing the new sanctions for the first time on Friday, Mr. Putin called them illogical and accused Western leaders of trying to derail the peace process in eastern Ukraine, according to Russian news agencies.

“I don’t even understand what these present sanctions are related to,” Mr. Putin told reporters in Dushanbe, Tajikistan. “Maybe someone does not like that the process has moved toward a peaceful scenario.”

In trying to shut down energy development in the Arctic, the United States and the European Union went after a pet project of Mr. Putin and a close associate, Igor Sechin, chief of Rosneft, the largest Russian oil company.

Exxon Mobil, in partnership with Rosneft, began drilling just last month in the Kara Sea, off Russia, a joint project that the Kremlin hailed as the most significant fruit of Russian-American cooperation since the end of the Cold War.

Exxon Mobil executives said their lawyers were trying to determine if their current oil and gas production in Russia would be affected. Aside from Arctic drilling and other exploration for future production, Exxon Mobil participates in a consortium on Sakhalin Island to produce oil and gas.

Russia is heavily dependent on American and European assistance in developing new energy sources. American officials said the new measures were not intended to curtail current production but to make clear to Moscow that its energy future would be severely curtailed unless it changed course.

The officials acknowledged that the moves might harm Western economies as well, but said that they fashioned them to minimize that.

“As in all of the sanctions steps we have taken,” Jacob J. Lew, the Treasury secretary, said in a statement, “we have designed the actions announced today to deliver significant pressure on the targets of our sanctions while safeguarding, to the extent possible, global financial markets and the global economy.”

The new sanctions prohibit American and European entities from issuing new debt with a maturity of more than 30 days to targeted Russian banks, energy companies and defense firms. That tightened the debt-financing limit, which was originally set at 90 days in the summer.

The banks targeted by the European measures are the same as those subjected to an earlier round of less severe restrictions in July, including Gazprombank and Sberbank. The oil companies include Rosneft, Transneft and Gazprom Neft, and the defense groups were identified as Oboronprom, the United Aircraft Corporation and Uralvagonzavod.

The United Aircraft Corporation is another of Mr. Putin’s favorites, set up in 2006 to corral a diverse group of struggling defense and civilian aeronautic enterprises into a new market-oriented but state-led conglomerate. The company is best-known for developing a midrange commercial airliner called the Superjet, which has had financial, technical and other problems, including a crash during a 2012 demonstration flight in Indonesia.
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Limiting big Russian banks and other firms to 30-day loans could cause a credit crunch as early as December, when $25.1 billion in Russian foreign corporate debt matures, Ivan Tchakarov, the chief economist for Citigroup in Russia, said in a telephone interview.

The Kremlin would then need to dip into windfall oil funds to bail out companies. Russia has about $470 billion in foreign reserves, which would cover all foreign debt maturing over the next two years, Mr. Tchakarov has estimated.

Also included on the list was Rostec’s director general, Sergei V. Chemezov, described in the Official Journal as a “known close associate” of Mr. Putin who, like the president, served with the K.G.B. in East Germany before the collapse of Communism. The United States had previously sanctioned Mr. Chemezov, but on Friday went after his company, cutting off Rostec’s access to medium- and long-term debt in the United States.

At his news conference, Mr. Putin responded to the travel bans with characteristic bravado, saying that he was pleased that more Russians would be unable to travel in the West because they should spend more time at home. “The less our officials and corporate executives travel abroad, the better,” he said.

With the latest additions, there are now 119 individuals on the list of those subject to travel bans and asset freezes by the European Union.

President Petro O. Poroshenko of Ukraine said from the capital, Kiev, that the new sanctions were an endorsement of his country, particularly given the economic problems that Europe faces. The Ukrainian president is scheduled to meet with President Obama in Washington on Sept. 18, and has said he will seek a security alliance with the United States outside the framework of the Atlantic alliance.

http://www.nytimes.com/2014/09/13/world/europe/european-union-details-tightened-sanctions-against-russia.html?hp&action=click&pgtype=Homepage&version=HpSumSmallMediaHigh&module=first-column-region®ion=top-news&WT.nav=top-news

These hurt.