WASHINGTON/MOSCOW (Reuters) - President
Barack Obama imposed sanctions on some of Russia's biggest firms for the
first time, striking at the heart of Vladimir Putin's powerbase by
targeting companies closest to him over Moscow's failure to curb
violence in Ukraine.
In the latest escalation of the conflict on the Ukrainian-Russian
frontier, Kiev said a Russian jet had shot down one of its
warplanes, its strongest accusation yet of direct Russian military
involvement in the war. A Ukrainian military spokesman said the
pilot of the SU-25 fighter ejected to safety.
After months of measures that hit only individuals and smaller
firms, Washington imposed sanctions on Russia's largest oil producer
Rosneft <ROSN.MM>, its second largest gas producer Novatek and its
third largest bank Gazprombank. The firms are run by Putin allies
who have become wealthy during his tenure.
Moscow denounced what it called primitive revenge for events in
Ukraine and pledged to retaliate. Putin said the U.S. sanctions
would hurt U.S. energy companies and bring relations to "a dead
end". His prime minister, Dmitry Medvedev, called the sanctions
evil, said they would not "bring anyone to their knees" and that
Russia would pay attention to defence spending.
The sanctions in effect close the firms to medium- and long-term
dollar funding. Other targets include Vnesheconombank, VEB, which
acts as payment agent for the government, and eight arms firms,
including the producer of the Kalashnikov assault rifle.
However, Washington stopped short of freezing the companies' assets,
closing off the short-term funding they need for day-to-day
operations or stopping U.S. firms doing business with them. Several
were quick to say it was business as usual.
Russia's rouble-traded stock market and the rouble itself fell on
opening but did not collapse. After stabilising, Rosneft <ROSN.MM>
was down around 4.5 percent and Novatek <NVTK.MM> 7.5 percent. The
MICEX index <.MCX> was off 2.6 percent.
There was no suggestion of disruption to production by Rosneft, by
output the world's biggest oil company listed on a stock exchange,
which singlehandedly produces 4 percent of the world's oil, more
than any OPEC country apart from Saudi Arabia.
An actual disruption to such a huge producer could in theory cause a
global energy crisis, but there was no sign of one on Thursday, with
oil prices only fractionally higher.
The measures mean that Washington has moved far further to punish
Russia than its EU allies, who collectively do 10 times as much
trade with Russia as the United States and depend on Moscow for
natural gas. Nevertheless, the European Union also said it was
imposing new sanctions and would draw up a list of targets by the
end of the month. It will block new loans to Russia through two
Moscow said the EU had "succumbed to the blackmail of the U.S.
administration" to follow Washington in imposing sanctions. Some
Russian officials predicted Brussels would baulk at the cost of the
But Ukraine's Prime Minister Arseny Yatseniuk said the simultaneous
action by Washington and Brussels showed that Western countries were
united in their support for Ukraine.
"All attempts by Russia to split the European Union, and to stop the
European Union and United States from agreeing, were doomed to
failure," he told his government in a cabinet meeting.
Russia must stop supplying weapons to Ukraine's rebels, and any
attempt to take Ukraine would fail, he said.
The sanctions show a new willingness to act by Western countries
over a crisis that has escalated in recent weeks. Hundreds of people
have died in fighting between Ukrainian troops and heavily armed
pro-Russian separatists who have declared independent "People's
Republics" in two provinces.
Moscow denies supporting the rebellion, but many of the separatist
fighters and their main leaders are from Russia. Kiev says they have
been bringing heavy weapons across the border.
The downing of the SU-25 fighter, which Kiev said on Thursday had
taken place on Wednesday evening, was the first time Ukraine has
unconditionally accused Moscow of using its air power in the war. On
Monday a Ukrainian transport plane was shot down by what Kiev said
was a missile fired from Russia, but it could not say if it was
fired from the air or the ground.
Putin, who annexed Ukraine's Crimea peninsula in March and has
referred to southern and eastern Ukraine as "new Russia", had
appeared keen in recent weeks to tamp down the worst confrontation
with the West since the Cold War, pulling back tens of thousands of
troops from the frontier.
But in recent days, Washington and Brussels say, he has again sent
some 12,000 troops to the frontier, while keeping the border open to
allow rebel fighters and arms to cross.
Ukraine drove rebels out of their main bastion in the town of
Slaviansk this month, but hundreds of them have decamped to Donetsk,
a city of nearly a million people, which has been emptying as
thousands of residents flee an expected battle.
EUROPE ON BOARD?
Obama warned of more sanctions if Russia did not take concrete steps
to ease the conflict and said Putin had so far failed to take steps
needed to resolve the crisis peacefully. "We have emphasized our
preference to resolve this issue diplomatically, but that we have to
see concrete actions and not just words that Russia, in fact, is
committed to trying to end this conflict along the Russia- Ukraine
border," he said.
The limits on the sanctions show how difficult it can be for Western
countries to punish Moscow without causing global economic havoc.
Russia is the world's largest oil producer and, after the United
States, second largest producer of natural gas.
The latest measures appear designed to restrict the firms' access to
investment capital while avoiding any disruption to energy output.
Notably, Russia's biggest company, gas export monopoly Gazprom
<GAZP.MM> which supplies around a third of Europe's gas, was not
included on the sanctions list.
Still, sanctions can have a strong indirect effect on Russia's
economy by forcing companies to reconsider investments there because
of future risk. Previous rounds of U.S. and EU sanctions that
targeted only a few dozen individuals and firms helped encourage
billions of dollars in capital flight that hurt Russia's shaky
economy. Rosneft, which under Putin absorbed the assets of a raft of
oil companies that were privatised in the 1990s, is the only Russian
firm that rivals Gazprom in scale. It had sales of $40 billion in
the first quarter, about 8.6 percent of Russia's GDP.
Its boss Igor Sechin, Putin's close friend since the 1990s, has
moved aggressively to win the company a bigger global profile. It
supplies virtually every major international oil company and has
joint projects with many of them.
In particular, it accounts for around a quarter of production for BP
<BP.L>, which owns 20 percent of it. It is also in the midst of a
deal to buy the oil trading assets of U.S. investment bank Morgan
Stanley <MS.N> and has several big oil projects in Russia with Exxon
Sechin, travelling with Putin in Brazil, said the sanctions were
"unjustified, subjective and unlawful, because the company has no
role in the Ukraine crisis".
Novatek was not available for comment. VEB declined to comment.
Gazprombank said the stability of its operations and finances were
not affected. BP said the sanctions appear on first glance to focus
on restricting access of targeted firms to medium and long-term U.S.
(For more details on the sanctions, see http://1.usa.gov/1kx0sxT)
(Additional reporting by Richard Balmforth and Natalia Zinets in
Kiev, Jeff Mason, Patricia Zengerle and Phil Stewart in Washington,
Adrian Croft in Brussels and Josephine Mason, Edward McAllister, and
Jonathan Leff in New York; and by Katya Golubkova and Polina Devitt
in Moscow; writing by Peter Graff; editing by Philippa Fletcher)