MOSCOW / BRUSSELS (Reuters) — President
Vladimir Putin signed laws completing Russia's annexation of Crimea on
Friday as investors took fright at a U.S. decision to slap sanctions on
his inner circle of money men and security officials.
Putin promised to protect a bank partly owned by an old ally,
which Washington has blacklisted, and his spokesman said Russia
would respond in kind to the latest financial and visa curbs after
producing one blacklist of its own.
His allies laughed off the U.S. sanctions, but shares on the Moscow
stock exchange — which have lost $70 billion of their value this
month — fell sharply after President Barack Obama also threatened to
target major sectors of the economy if Russia moved on areas of
Ukraine beyond the Black Sea peninsula.
Obama's national security adviser said the world was reassessing its
relationship with Russia and Washington was skeptical of Russian
assurances that troop movements on the Ukraine border were no more
than military exercises.
The financial noose began tightening with Visa and MasterCard
stopping processing payments for a Russian bank owned by two
brothers on the U.S. blacklist. Finance Minister Anton Siluanov said
Russia might cancel its foreign borrowing for 2014 and raise less
domestically if the cost of issuing debt rose.
European Union leaders — who like Obama insist Crimea is still part
of Ukraine — imposed their own sanctions on 12 people, including
Russian deputy prime minister Dmitry Rogozin and two aides to Putin.
Canada sanctioned 14 people.
Shaken by the worst East-West crisis since the Cold War, the EU also
pledged to cut its reliance on Russian energy and signed a political
deal with the pro-Western Ukrainians who took power after
Moscow-backed President Viktor Yanukovich's overthrow last month.
In a Kremlin ceremony shown live on state television, Putin signed a
law on ratification of a treaty making Crimea part of Russia and
another creating two new Russian administrative districts: Crimea
and the port city of Sevastopol, where Moscow keeps part of its
Black Sea fleet.
Thousands of Russians marked the annexation with fireworks and
celebrations in Simferopol, capital of Crimea where the population
is around 58 percent ethnic Russian.
"Many people wanted this, to go back, not to the USSR, but to that
big country of ours," said Anna Zevetseva, 32. "We are waiting for
things to improve and for investment from Russia."
Ukrainian and Tatar residents stayed behind closed doors. Sergey, a
64-year-old Ukrainian businessman who did not want to give his
surname, saw no reason to celebrate. "An occupying force is in my
country and we have been annexed," he said.
INNER CIRCLE
A referendum last Sunday after Russian troops seized control of
Crimea overwhelmingly backed union with Russia but was denounced by
Washington and the European Union as a sham. It opened the way for
annexation within a week.
The OSCE European rights and security body finally agreed to send
monitors to Ukraine after a delay Western members blamed on Russia,
but Moscow said it would have no mandate in Crimea.
Obama's decision to target people who accompanied Putin's rise from
the mayor's office in St Petersburg in the 1990s to the Russian
presidency deepened the diplomatic confrontation.
Putin said Bank Rossiya, singled out by Washington as the personal
bank for senior Russian officials, had nothing to do with events in
Crimea.
The St Petersburg-based bank — which is chaired and partly owned by
Yuri Kovalchuk, an old associate of Putin's — mainly serves clients
in Russia's energy sector including businesses owned by state-run
gas producer Gazprom.
Putin, who says Crimea has exercised its right to
self-determination, promised to transfer his wages to Bank Rossiya.
"I personally don't have an account there, but I certainly will open
one on Monday," he told Russia's Security Council.
Others on the U.S. blacklist include oil and commodities trader
Gennady Timchenko and the brothers Arkady and Boris Rotenberg, who
are linked to big contracts on gas pipelines and the Sochi Olympics,
as well as Putin's chief of staff and his deputy, the head of
military intelligence and a railways chief.
ENERGY UNION
European leaders also agreed to accelerate their quest for more
secure energy supplies at talks on Friday.
The EU has made progress in diversifying since crises in 2006 and
2009, when rows over unpaid bills between Kiev and Moscow led to the
disruption of gas exports to western Europe. But Russia still
provides around a third of the EU's oil and gas and 40 percent of
the gas goes through Ukraine.
European Council President Herman Van Rompuy said member states
would help one another to maintain supplies if Moscow cut them. "We
are serious about reducing our energy dependency," he told a news
conference at the end of a summit in Brussels.
EU countries, which buy Russian gas individually, will also look to
negotiate supply deals jointly with Moscow to increase their
bargaining power. "It is clear we need to be moving towards an
energy union," said Van Rompuy.
German Chancellor Angela Merkel raised the possibility that U.S.
shale gas could eventually be an option for European countries
seeking to diversify. Obama is expected to address the issue at a
summit with EU leaders next Wednesday.
Foreign banks and companies
now fear the secondary ripple effects of the sanctions. In a
worst-case scenario for them, Washington would stop banks doing
business with Russian clients, similar to the sanctions that were
imposed on Iran.
"What has been announced so far is really nothing. It's purely
cosmetic," said a French banker based in Moscow, adding that the
biggest risk was to transfers in U.S. dollars, crucial for the
energy export-dependent Russian economy.
Obama said on Thursday that Washington was also considering
sanctions against economic sectors including financial services, oil
and gas, metals and mining and the defense industry, if Russia made
military moves into eastern and southern Ukraine.
In Crimea itself, Ukrainian troops who have been surrounded by
Russian forces continued to leave their bases, powerless to halt
Moscow's takeover of the peninsula.
"The situation in Ukraine remains unstable and menacing," said
German Foreign Minister Frank-Walter Steinmeier, urging the OSCE
observers to take up their work as quickly as possible.
EU SUPPORT FOR KIEV
European governments also took individual action against Russia.
Germany suspended approval of all defense-related exports to Russia,
ordering contractor Rheinmetall to halt delivery of combat
simulation gear, while France called off military cooperation with
Moscow.
In Brussels, the 28 EU leaders underlined their support for
Ukraine's new leadership, signing a political agreement with interim
Prime Minister Arseniy Yatseniuk.
They also promised financial aid for the government — rejected as
illegitimate by Moscow — as soon as Kiev reaches a deal with the
International Monetary Fund.
The IMF is to report next Tuesday on advanced talks with Ukraine on
a loan program that would be linked to far-reaching reforms of the
shattered economy.
Three months of protests were set off by Yanukovich's refusal to
sign an association agreement with the EU, the political part of
which was signed on Friday.
Russia's MICEX stock index fell about 3 percent when trade opened,
although it recovered some of the losses later. Promsvyazbank
analyst Oleg Shagov said Obama had "opened a Pandora's box full of
sanctions", with future sanctions to be "directed against whole
sectors of the Russian economy".
Negative market sentiment was reinforced by warnings from credit
ratings agencies Fitch and S&P that they were changing their
outlooks on Russia to negative from stable because of the possible
impact of sanctions on Russia's economy and business climate. Both
agencies presently rate Russia BBB.
Prime Minister Dmitry Medvedev made clear that Russia would step up
financial pressure on Ukraine. He said the former Soviet republic
should repay Moscow $11 billion under a gas supply contract that
should be scrapped because it no longer applied.
(Additional reporting by Alexandar Vasovic in Simferopol, Luke
Baker, Justyna Pawlak, Jan Strupczewski, Barbara Lewis, Robin Emmott
and Martin Santa in Brussels, Oksana Kobzeva, Lidia Kelly, Elizabeth
Piper, Jason Bush, Megan Davies and Alexei Anishchuk in Moscow;
Lionel Laurent in Paris; writing by David Stamp; editing by Will
Waterman, Paul Taylor and Philippa Fletcher)
