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European Union Details Tightened Sanctions Against Russia European Union Sanctions Target Putin’s Economic Efforts
(about 5 hours later)
MILAN — The European Union tightened economic sanctions against Russia on Friday in response to the country’s role in the Ukraine crisis, imposing additional restrictions on oil companies and extending asset freezes and travel bans to 24 more individuals. BRUSSELS — Expanding sanctions intended to deter Russia from stoking the conflict in eastern Ukraine, the European Union on Friday took aim at the heart of a project by Vladimir V. Putin, the Russian president, to reshape and revive Russia’s flagging economy through the development of Chinese-style state capitalism.
The measures, aimed at Russia’s financial, energy and defense sectors, will be reviewed by diplomats before the end of the month and could be revised swiftly if a cease-fire holds, European Union officials said on Thursday in announcing the broader action. The measures, announced after nearly two weeks of divisive quarreling among the bloc’s 28 member states, target a raft of financial, defense and industrial companies in the vanguard of a push by Mr. Putin to replace the wild free-market capitalism of the 1990s with state-led development.
The new round of sanctions significantly ratchets up restrictions on the Russian financial sector and prohibits European entities from buying debt with a maturity of more than 30 days, from issuing loans or from providing financial services to five banks, three oil companies and three defense firms. The sanctions sharply curtail access to European capital by Rosneft, the state oil company, which took over most of the assets of Yukos, a private company disbanded by the state after the arrest in 2003 of Mikhail B. Khodorkovsky, one of a small group of oligarchs who acquired great wealth and power when Boris N. Yeltsin was president. They also target Gazprom Neft, the petroleum affiliate of the state-controlled natural gas giant, Gazprom, and Transneft, the state pipeline monopoly.
The banks are the same as those that were subjected to an earlier round of less severe restrictions in July, including Gazprombank and Sberbank. The oil companies are Rosneft, Transneft and Gazprom Neft, and the defense groups were identified as Oboronprom, the United Aircraft Corporation, and Uralvagonzavod. In a notice detailing the measure in its Official Journal published Friday, the European Union also expanded moves intended to curb Russia’s search for new sources of oil in the Arctic, a pet project of Mr. Putin and a close associate, Igor Sechin, chief of Rosneft. It prohibits European companies from providing drilling and other services for “deepwater exploration, Arctic oil exploration and production, or shale oil project in Russia,” the notice says. This adds to pressure on Exxon Mobil, the United States energy giant, to curtail its own partnership with Rosneft for oil exploration in the Arctic, a joint project that the Kremlin hailed as the most significant fruit of Russo-American cooperation since the end of the Cold War.
The sanctions detailed Friday included asset freezes and travel bans on Igor V. Lebedev, a lawmaker in the Russian Parliament, for supporting the annexation of Crimea, and on Vladimir Zhirinovsky, a nationalist member of Parliament, for supporting the use of armed forces in Ukraine and for calling for the division of that country. But, in a significant concession to European energy and oil services companies that will blunt the impact of the new sanctions, Friday’s notice specified that they would not apply to existing projects in the Arctic and elsewhere in Russia.
Also included on the list was Sergei V. Chemezov, described in the European Union’s Official Journal as a “known close associate” of President Vladimir V. Putin of Russia. Mr. Chemezov leads a conglomerate, Rostec, with a subsidiary that plans to build energy plants in Crimea, “thereby supporting its integration into the Russian Federation,” the Official Journal said. The new European sanctions also limit the capital-raising prospects of the United Aircraft Corporation, another of Mr. Putin’s favorite economic ventures. He set it up in 2006 to corral a diverse group of struggling defense and civilian aeronautics enterprises created during the Soviet period into a new market-oriented but state-led conglomerate.
The addition of 24 individuals to the list of those subject to travel bans and asset freezes brings the total to 119 since the European Union began introducing the measures in March. The company’s best-known venture in recent years has been the development of a new midrange commercial airliner called the Superjet, designed to compete with Bombardier of Canada and Embraer of Brazil. But the project has been dogged by financial, technical and other problems, including a crash in 2012 during a demonstration flight in Indonesia. Various state companies involved in military production, including Kalashnikov, the weapons manufacturer, and Oboronprom, which makes helicopters, were also targeted.
Russia’s once-booming economy has slowed to a standstill under the weight of uncertainty of the Ukraine crisis and stagnant oil revenues.
But economists are reluctant to blame Western sanctions in this general slowdown, other than their effect of piling onto the wider negative sentiment in the markets about Russia these days.
In Moscow on Friday, the main stock market index, the Micex, rose 1.25 percent as details of the latest round of sanctions became public, as they were less severe than expected, allowing, for example, the grandfathering in of technology transfers under existing oil contracts.
As such, the market perceived the sanctions, again, as more a warning than a blow to the oil industry, analysts said.
The European Union added 24 names to a list of people, mostly Russians, subject to an asset freeze and travel ban, including Sergei V. Chemezov, a central figure in Mr. Putin’s drive to mimic China’s success with state-run industrial conglomerates. Mr. Chemezov is a director of the United Aircraft Corporation and head of Rostec, a sprawling state company that includes an arms exporter, Rosoboronexport, and Technopromexport, a company that plans to build energy plants in Crimea, the Ukrainian region annexed by Russia in March.
Unlike most other additions to the list — like Vladimir Zhirinovsky, an outspoken ultranationalist politician, and Aleksandr Zakharchenko, a separatist leader in the Donetsk region of Ukraine — Mr. Chemezov is an important figure in an inner Kremlin circle dominated by former security service officers.
The Official Journal notice described him as a “close associate” of Mr. Putin who, like the president, served with the K.G.B. in Dresden, East Germany, before the collapse of communism.
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.
Also hit by the new sanctions, which expand on less severe restrictions announced in July, are state-controlled banks at the center of Mr. Putin’s faltering drive to modernize the economy through targeted investment to favored state enterprises. A thicket of new restrictions sharply limit Russian banks’ access to European funds and expertise, barring them from taking out loans or issuing bonds or other debt instruments in Europe with a maturity of more than 30 days.
Friday’s announcement did not specifically name any Russian banks, but it expanded modest restrictions on five state-controlled financial institutions — Sberbank, VTB Bank, Gazprombank, Vnesheconombank and Rosselkhozbank — that were named in an earlier sanctions notice on July 31. Those sanctions prohibited European institutions from buying bank debt from the five named banks with a maturity of more than 90 days, but allowed them to issue to them.
Limiting big Russian banks and oil and military companies to 30-day loans risks causing 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.
European leaders agreed last month to impose new sanctions on Russia, but their implementation had been slowed by calls from some countries to back off following last Friday’s announcement of a cease-fire between pro-Russia rebels fighting Ukrainian government forces in eastern Ukraine. But the European Council, a body representing European Union members, cited the “gravity of the situation” and said it “considers it appropriate to take further restrictive measures in response to Russia’s action destabilizing the situation in Ukraine.”
Officials have emphasized that the measures will be reviewed by diplomats before the end of the month and could be revised swiftly or even scrapped if the cease-fire holds. The United States is expected to announce details of its own, tougher sanctions on Russia later on Friday.
President Petro O. Poroshenko of Ukraine said from the capital, Kiev, that the new European sanctions were an endorsement of his country, particularly given the economic problems that Europe faces.President Petro O. Poroshenko of Ukraine said from the capital, Kiev, that the new European sanctions were an endorsement of his country, particularly given the economic problems that Europe faces.
Despite strong vocal support from Europe and the United States, and the high profile of the crisis at a NATO summit meeting in Wales last week, Ukraine has not received much tangible economic nor military aid. Despite strong vocal support from Europe and the United States, and the high profile of the crisis at a NATO summit meeting in Wales last week, Ukraine has not received much tangible economic or military aid.
Ukraine is expected to ratify an association agreement with the European Union on Tuesday. Given that the country’s efforts to extract itself from Moscow’s orbit led to a separatist conflict, Mr. Poroshenko said it would be impolite for the European Union not to move to the next step, known as “accession partnership” and designed as a possible path to membership. Ukraine’s Parliament is expected to ratify an association agreement with the European Union on Tuesday. Given that the country’s efforts to extract itself from Moscow’s orbit led to a separatist conflict, Mr. Poroshenko said it would be impolite for the European Union not to move to the next step, known as “accession partnership” and intended to steer Ukraine toward membership in the bloc.
The Ukrainian president is scheduled to meet with President Obama in Washington on Dec. 18, and has said he will seek a security alliance with the United States outside the framework of the Atlantic alliance. Although the United States has pledged $70 million in aid, and has dispatched military advisers to the country, the aid has been slow to arrive. The Ukrainian president is scheduled to meet with President Obama in Washington on Dec. 18, and has said he will be seeking a security alliance with the United States outside the framework of the Atlantic alliance. Although the United States has pledged $70 million in aid, and has dispatched military advisers to the country, the aid has been slow to arrive.
The United States has yet to take a public stance on such an alliance.The United States has yet to take a public stance on such an alliance.
Mr. Poroshenko said the cease-fire reached on Sept. 5 was growing stronger by the day, but avoided criticizing Russia directly and emphasized repeatedly that Kiev sought a peaceful settlement to the crisis.
In the most detailed statement he has made publicly about winning back Crimea, he said that taking back the region by force was impossible. Instead he said Ukraine should seek to achieve that result by convincing Crimeans that they would be better off as part of Ukraine than Russia.
“I am confident that we will win a liberal, democratic competition for the minds of the Crimean people," Mr. Poroshenko said.
Mr. Poroshenko was speaking at the 11th Yalta European Strategy conference, an annual gathering of politicians, economists, diplomats, academics and others from around the world.
The forum, organized by the billionaire industrialist Viktor M. Pinchuk, has been held for the past decade at Livadia, the last czar’s seaside palace in Yalta on the Crimean peninsula, which was annexed by Russia in March. This year it was held in downtown Kiev, with the annexation mentioned repeatedly as a threat to the future of Europe.