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Obama Widens Sanctions Against Russia in Ukraine Face-Off Raising Stakes On Russia, U.S. Adds Sanctions
(about 3 hours later)
WASHINGTON — President Obama escalated sanctions against Russia on Wednesday by targeting a series of large banks and energy and defense firms in what officials described as the most punishing measures to date for Moscow’s intervention in Ukraine. WASHINGTON — President Obama imposed a new round of sanctions against Russia on Wednesday, targeting some of the crown jewels of the country’s financial, energy and defense industries in what officials described as the most punishing measures taken to date by the United States in retaliation for Moscow’s intervention in Ukraine.
While the latest moves do not cut off entire sectors of the Russian economy, as threatened in the past, the administration’s actions go significantly further than the financial and travel limits imposed so far on several dozen individuals and their businesses. The new measures will severely restrict access to American debt markets for the targeted companies. The new actions will, among other things, restrict access to American capital markets for Russian giants like the Rosneft oil company and Gazprombank that operate worldwide. While the latest moves did not cut off entire sectors of the Russian economy, they went significantly further than the financial and travel limits imposed previously on several dozen individuals and their businesses.
“We have emphasized our preference to resolve this issue diplomatically, but we have to see concrete actions and not just words,” Mr. Obama told reporters on Wednesday evening in remarks in the White House briefing room. The announcement reflected a decision by Mr. Obama to take more stringent steps than those taken by the United States’ European allies, which have far deeper economic ties to Russia. Meeting in Brussels, leaders of the European Union refused to match the American measures and instead adopted a more tempered plan that blocks new development loans to Russia and threatens to target more Russian individuals.
He repeated that Russia needed to halt the flow of fighters and weapons across the border and support peace talks. “So far, Russia has failed to take any of the steps that I have mentioned. In fact, Russia’s support for the separatists and violations of Ukraine’s sovereignty has continued.” The disparate moves suggested a widening gulf in the response to the Ukraine crisis and may dilute the impact of the American actions. But both sides emphasized their continued solidarity on the basic demands that Moscow halt the flow of fighters and weapons across the border with Ukraine, support a cease-fire and help facilitate the release of hostages held by pro-Russian separatists.
Among the firms targeted were some of the most prominent in Russia, including Rosneft, the state-owned oil company and largest oil producer; Gazprombank, the financial arm of Gazprom, the giant state-controlled natural gas producer; Novatek, another Russian natural gas producer that has been competing with Gazprom; and VEB, the state economic development bank. “What we are expecting is that the Russian leadership will see, once again, that its actions in Ukraine have consequences, including a weakening Russian economy and increasing diplomatic isolation,” Mr. Obama told reporters in an early-evening appearance in the White House briefing room.
The administration also targeted eight state-owned defense firms; four Russian government officials, including an aide to President Vladimir V. Putin and a top official in the Federal Security Service; an oil shipping facility in Crimea, which Moscow annexed; a pro-Russian separatist leader; and the rump rebel organizations in the eastern Ukrainian cities of Donetsk and Luhansk.
Russia quickly denounced the moves and vowed to retaliate. “We condemn those politicians and bureaucrats who are behind such actions,” Sergei A. Ryabkov, the deputy foreign minister, told the Interfax news agency. Mr. Ryabkov said that Moscow would respond with countermeasures that would be “quite painful and serious.”Russia quickly denounced the moves and vowed to retaliate. “We condemn those politicians and bureaucrats who are behind such actions,” Sergei A. Ryabkov, the deputy foreign minister, told the Interfax news agency. Mr. Ryabkov said that Moscow would respond with countermeasures that would be “quite painful and serious.”
The moves were coordinated with European leaders, who were meeting in Brussels on Wednesday to consider their own package of penalties against Russia. The Europeans declined to go as far as the United States, instead focusing on a plan to block loans for new projects in Russia by European investment and development banks. The firms targeted by the capital market restrictions were some of the most prominent in Russia. Rosneft, owned by the state and headed by a longtime adviser to President Vladimir V. Putin, is the country’s largest oil producer. Gazprombank is the financial arm of Gazprom, the state-controlled natural gas giant, which is also headed by a Putin ally. Also targeted were VEB, the state economic development bank, and Novatek, another natural gas producer.
The disparate approaches reflect the deeper divisions between Washington and Brussels over how tough to be with Russia. The administration also barred business dealings with eight state-owned defense firms; four Russian government officials, including an aide to Mr. Putin and a top official in the Federal Security Service; an oil shipping facility in Crimea, which Moscow annexed; a pro-Russian separatist leader; and the rump rebel organizations in the eastern Ukrainian cities of Donetsk and Luhansk.
But American officials said the fact that Europe was moving ahead with additional actions, even if not as stringent as their own, should be seen as a sign of continuing solidarity in the face of Russian provocation in Ukraine. The synchronized actions were arranged during a Tuesday telephone call between Mr. Obama and Chancellor Angela Merkel of Germany, who has been the most critical player driving the European response to Russia. The four banks and energy companies will be barred from future loans with maturity over 90 days, meaning they will still be able to conduct day-to-day business with overnight capital but will find themselves shut out of longer-term equity. Some officials and experts said it could raise the cost of borrowing for Russian firms as they seek other creditors who may be wary of future American steps.
“We have said for quite some time that Russia’s failure to take some of the steps that would de-escalate the conflict in Ukraine put them at risk of facing greater isolation and greater economic consequences,” Josh Earnest, the White House press secretary, told reporters at a briefing hours before the new sanctions were announced. Gazprombank has $8.2 billion in debt over 90 days denominated in American dollars, and while some of that may have come through European or other institutions, officials said the vast majority of it could not be financed, cleared and settled without involving participants in the United States capital markets who would be affected by the new measures.
The latest actions reflect a conclusion by American intelligence agencies that Russia has not cut off the flow of fighters and arms across the border to pro-Russian separatists. Ukrainian officials have said they believe Russia was responsible for the downing of a military transport plane in Luhansk, a rebel stronghold in eastern Ukraine. Mr. Obama’s actions would not bar the targeted Russian banks or energy companies from doing business with Americans or seize their property. Rosneft, for instance, has major joint ventures with ExxonMobil that will still be permitted. But administration officials pointedly noted that such moves were still possible if Russia did not back down. And they said the latest moves could curb foreign willingness to invest in Russia more broadly.
The White House summoned European Union ambassadors on Monday to a briefing at which they were shown fresh intelligence on Russian involvement in the Ukrainian turmoil and were pressed to take stronger action. Frustrated after waiting for several weeks for the Europeans to follow through on threats of further sanctions, American officials signaled that Mr. Obama was prepared to act unilaterally if necessary. Douglas A. Rediker, a visiting fellow at the Peterson Institute for International Economics, said the actual exposure to the American capital market may be small. “But the chilling effect on hitting sizable banks and energy companies could cause major second thoughts for doing business and investing far beyond direct U.S. capital market impact,” he said.
The new American actions will bar affected Russian companies from the American debt markets for loans over 90 days, meaning that they will still be able to conduct day-in, day-out business with overnight loans but will find it harder to finance medium- and long-term activity, officials said. Others were more skeptical. “What happens if this doesn’t work?” asked Samuel Charap, a senior fellow at the International Institute for Strategic Studies. The “risks of escalation seem huge,” he added, “and there’s a question of whether this level of pain makes losing Ukraine acceptable to Putin. Unlikely, in my view.”
European officials were unwilling to take parallel actions, given their far more extensive economic ties with Russia. Trade between Russia and Europe dwarfs that between Russia and the United States, and much of Europe depends on Russian energy. Several lawmakers from both parties praised Mr. Obama’s move, but some Republicans called it inadequate. “Limited actions like those announced today make U.S. threats look hollow,” said Senator Marco Rubio, Republican of Florida, adding that Mr. Obama was “continuing to avoid decisive action.”
Additionally, while some European countries, particularly in the eastern region once dominated by the Soviet Union, were more supportive of tougher measures, generating a consensus among all 28 members of the European Union has been problematic. American business groups, including the U.S. Chamber of Commerce and the National Association of Manufacturers, have objected to unilateral sanctions, arguing that they would only hurt domestic businesses while their European competitors swooped in. Mr. Obama tried to address that concern on Wednesday.
Mr. Obama’s actions would not bar the targeted Russian banks or energy companies from doing business with Americans or seize their property. But officials pointedly noted that such moves were still possible if Russia did not back down. And they said that in cutting off access to capital markets, the impact could be powerful, both directly against the companies and in further curbing foreign willingness to invest in Russia more broadly. “These sanctions are significant, but they are also targeted, designed to have the maximum impact on Russia while limiting any spillover effects on American companies or those of our allies,” the president said.
The latest actions reflect a conclusion by American intelligence agencies that Russia has not cut off the flow of fighters and arms across the border to pro-Russian separatists. Ukrainian officials have said they believe Russia was responsible for the downing of a military transport plane on June 14 in Luhansk, a rebel stronghold.
An American official briefing reporters on Wednesday said that the plane was shot down from an altitude of 21,000 feet, and that only a sophisticated weapons system could do that. “Over the past month, the flow of heavy weapons and support for separatists from Russia has actually increased,” the official said.
The White House summoned European Union ambassadors on Monday to a briefing at which they were shown new intelligence on Russian involvement in the Ukrainian turmoil and were pressed to take stronger action. Frustrated after waiting for several weeks for the Europeans to follow through on threats of further sanctions, American officials signaled that Mr. Obama was prepared to act unilaterally if necessary.
Mr. Obama called Prime Minister David Cameron of Britain and President François Hollande of France, but the critical call was on Tuesday with Chancellor Angela Merkel of Germany, the driving force behind Europe’s response to Russia. Aides said Mr. Obama and Ms. Merkel coordinated the twin, if imbalanced, actions on Wednesday.
In Brussels, the European Council, which defines the European Union’s political direction and priorities, told the European Investment Bank to suspend new financing for projects in Russia and suggested that the European Bank for Reconstruction and Development follow suit. The council also said it would decide by the end of July on a list of additional sanctions targets, including those “who actively provide material or financial support to the Russian decision-makers.”
That language suggested that Europe might next take aim at Russian oligarchs who are part of Mr. Putin’s ruling clique, a group already penalized by the Americans but so far spared by the Europeans.
“Washington seems to have agreed to give Europe more time to accept diplomacy isn’t working by holding back on unilateral sanctions,” said Mujtaba Rahman, the director for Europe at the Eurasia Group in London, which advises investors on the crisis in Ukraine. “But at some point, the Europeans will have to follow the American lead toward economic sanctions targeting whole industry sectors.”