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U.S. joining EU on Russian curbs sets stage for reprisal
By Bloomberg -
The U.S. will join the European Union in stiffening sanctions on Russia over Ukraine, prompting the government in Moscow to threaten retaliation.
The U.S. will “deepen and broaden” measures against Russia’s financial, energy, and defense industries, President Barack Obama said in a statement yesterday, hours after an announcement by the EU. The latest round of economic restrictions from both the U.S. and the EU will take effect today. European companies and taxpayers “will have to pick up the costs” for the penalties, Dmitry Peskov, a spokesman for Russian President Vladimir Putin, told Interfax.
The moves raise the level of confrontation and follow reprisals last month, when the Russian leader banned a range of food imports after an earlier round of U.S. and European penalties. Putin denies any involvement in the fighting that broke out after he annexed Crimea in March in what has become the worst crisis between Russia and its former Cold War adversaries since the fall of the Berlin Wall.
“So far, the West has eschewed Iran-style sanctions,” Tatiana Orlova, a London-based economist at Royal Bank of Scotland Group Plc, said in an e-mailed note yesterday. The EU’s latest “announcement confirms that the sanctions race continues, and the markets will remain affected by anticipation of further sanctions and Russian retaliatory measures.”
EU sanctions
Ending days of wrangling, representatives of the EU governments agreed to impose curbs on European assistance for Russian oil exploration and production and on the financing of Russian defense and energy companies. The EU also slapped travel bans and asset freezes on 24 more people accused of destabilizing Ukraine, bringing the total to 119.
Russia will retaliate against an “unfriendly policy which doesn’t meet the EU’s interests,” Foreign Ministry spokesman Alexander Lukashevich said in Moscow.
Russia’s Economy Ministry drafted a list of goods that may be banned, state-run RIA Novosti reported, citing Kremlin economic aide Andrei Belousov. Possible targets include automobile imports -- particularly used cars -- as well as textiles and clothing, according to RIA.
Russia was also weighing restrictions on overflights to the Asia-Pacific as retaliation for sanctions against Aeroflot’s low-cost unit Dobrolet.
Record drop
The ruble weakened to a record against the dollar and Russian stocks fell over the prospect of EU sanctions. The Russian currency retreated as much 0.9 percent to 37.6205 per dollar. The Micex Index lost 1.3 percent, the most since Aug. 29. Ten-year local-currency bonds fell for a fourth day.

A customer selects processed meats hanging in a cabinet inside a Metro Cash & Carry store in Moscow, Russia. The Russian leader banned a range of food imports after an earlier round of U.S. and European penalties.
The fighting in Ukraine has killed more than 3,000 people and driven more than 1 million from their homes, according to the United Nations. Although Ukrainian authorities said separatists continued to fire on government positions, President Petro Poroshenko said Russia is beginning to withdraw troops from the border conflict zones.
Ukraine, the U.S. and NATO have said that Russian troops, intelligence, artillery and tanks earlier backed a rebel offensive on the port city of Mariupol on the Sea of Azov.
The 28-member EU is offering to ease the restrictions once the Kremlin makes a good-faith effort to end the conflict.
Amend, suspend
“We have always stressed the reversibility and scalability of our restrictive measures,” EU President Herman Van Rompuy said in a statement from Brussels. A review of the cease-fire in eastern Ukraine by the end of September may lead to EU “proposals to amend, suspend or repeal the set of sanctions in force, in all or in part.”
The EU won’t spell out what it wants to see on the ground to justify an easing or lifting of sanctions, according to an official from the bloc who spoke on condition of anonymity. It also won’t predict exactly when this decision will be made. The review will cover all sanctions now in force.
Yesterday’s sanctions and the ones adopted in July run until end-July 2015, the official said. A unanimous decision by all 28 EU government will be required to renew them.
EU governments first voted for the sanctions on Sept. 5, while laying bare the bloc’s divisions over Russia by putting the curbs on hold as the cease-fire between Ukraine and Russian-backed separatists kicked in. Some countries had argued that rushing ahead with the restrictions now would give the Kremlin a pretext to restart the fighting.
Stocks, bonds
The latest sanctions will bar Europeans from lending to or buying stocks or bonds with more than 30-day maturities from five Russian state-owned banks. Three Russian defense and three energy companies will be frozen out of European capital markets.
Services such as drilling, well-testing or logging were forbidden for Russian deep-water, Arctic and shale oil exploration and production. Restrictions were also widened on the sale of civilian equipment and electronics that has military applications.
EU sanctions decisions require the support of all EU governments, giving any one nation leverage to seek concessions. Several European leaders including Hungary’s Viktor Orban had expressed concerns that further penalties against Russia will hurt their own economies.
In July, the EU barred five state-owned Russian banks from selling shares or bonds in Europe. It also restricted the export of equipment to modernize the oil industry, prohibited new contracts to sell arms to Russia, and banned the export of machinery, electronics and other civilian products with military uses -- so-called dual-use goods -- to military users.
Putin’s response
Russia responded by banning imports of some EU farm goods, a step that has cut off about 5 billion euros ($6.5 billion) of annual trade and left the bloc struggling to aid its producers.
The Sept. 5 cease-fire continued to show signs of strain, with the separatists shelling Ukrainian troops 20 times during the past day and 129 times since the truce began, Ukrainian military spokesman Andriy Lysenko said in Kiev yesterday.
Ukraine plans to build “engineering works” along its borders with Russia and Crimea in 2014-2015, according to Lysenko. The government is also putting up fortifications and bringing in heavy weapons to defend Mariupol, Lysenko said.
Ukrainian parliament Speaker Oleksandr Turchynov said that if the truce doesn’t hold, the government in Kiev “will have no alternative but to mobilize all resources after introducing martial law and to clear the country of usurpers.”
“Our task is to prevent Donbas from becoming a zone of frozen conflict,” Turchynov said. “I rule out a format in which Ukraine agrees that Russia controls part of the territories of the Donetsk and Luhansk regions.”