New U.S. Sanctions On Putin Allies Cause Few Ripples

Posted by Joseph R. Fonseca
Monday, April 28, 2014
President Barack Obama

 

The United States imposed fresh sanctions on Russian firms and government officials on Monday, a move that financial markets largely shrugged off and U.S. Republican lawmakers dismissed as too little to deterMoscow from further action in Ukraine.

The reaction underscored the dilemma facing President Barack Obama: how to use sanctions to punish Moscow for its intervention in Ukraine without hurting European countries and foreign companies with deep financial ties to Russia.

Washington slapped sanctions on seven Russian government officials and 17 companies linked to President Vladimir Putin, in response to what the White House said was Moscow's failure to adhere to an April 17 agreement on ways to resolve the crisis.

Washington also said it would deny export license applications for any high-technology items that could contribute to Russian military capabilities. The Commerce and State Departments will revoke any existing export licenses that meet these conditions, the White House said.

The sanctions, the third round imposed by the United States since the Ukrainecrisis began, caused barely a ripple. Global equity markets rose partly on relief that the sanctions were not as severe as they might have been. There had been fears that the White House could target whole sectors of the Russian economy.

"These sanctions did not go to the next level," said Robert Abad, portfolio manager for Legg Mason Inc 's Western Asset Management unit in California, who helps oversee about $53 billion in emerging market debt. "The fact that these sanctions were a continuation of what we've already seen brought some relief to markets."

Obama, ending a weeklong trip to Asia, has made clear that should Russia launch a military move deeper into Ukraine, the United States will impose sanctions on Russian economic areas such as the financial services, energy, metals and mining, engineering and defense sectors.

"We believe that the impact on the Russian economy will only grow," said a senior Obama administration official.

ASSET FREEZES, VISA BANS

The European Union also expanded sanctions on Monday, imposing asset freezes and visa bans on 15 more Russians and Ukrainians. Canada, too, imposed sanctions, targeting two Russian banks and nine individuals.

The seven Russians sanctioned by the United States include two Putin allies: Igor Sechin, head of Russia's major oil company Rosneft, and Sergei Chemezov, head of Rostec, a Russian state-owned high-tech products company.

Despite having no energy industry background, Sechin, a close lieutenant of Putin for more than two decades, has served for two years as the leader of Rosneft, a state-controlled company that under the Russian president became the world's biggest publicly listed oil producer.

Chemezov worked in communist East Germany at the same time as Putin and sits atop a sprawling conglomerate that has stakes in some of Russia's largest industries, including weapons, cars and metals.

The other people named were Oleg Belavencev, Putin's presidential envoy to Crimea, Dmitry Kozak, deputy prime minister of the Russian Federation, Evgeniy Murov, director of Russia's federal protective service, Aleksei Pushkov, a stateDuma deputy, and Vyacheslav Volodin, a Putin adviser.

The list did not include Gazprom chief Alexei Miller, a close ally of Putin who had been seen as a possible target.

The seven are now subject to a freeze on assets they hold in the United States and a ban on U.S. travel. The 17 companies will be subject to an asset freeze.

RUSSIA SAYS SANCTIONS UNCIVILIZED

Russian Deputy Foreign Minister Sergei Ryabkov called the new sanctions illegitimate and uncivilized and said they were based on an "absolutely distorted" view of events in Ukraine.

Rosneft shares fell 1.7 percent, but oil traders and global energy companies played down the repercussions of the sanctions on Sechin.

"So he cannot fly to drink with U.S. energy executives," said one senior Russian oil trader. "But otherwise business will continue."

Shares of British oil major BP Plc, which owns 19.75 percent of Rosneft, fell 1 percent. It said it would remain a long-term investor in Russia. "We are committed to our investment in Rosneft and we intend to remain a successful, long-term investor in Russia," a BP spokesman said.

Mark Mobius, who manages more than $40 billion in emerging-markets assets at Franklin Resources Inc's Franklin Templeton Investments, dismissed the impact from the sanctions on his portfolio, which includes about $200 million in Ukrainian stocks and $500 million in Russian equities.

"The word we're getting from the companies in which we invested is 'no big deal'," he told Reuters in an interview. "For Russia, prices have been really depressed, and the valuations are extremely attractive."

Obama has drawn fire from Republican critics who think he has not moved aggressively enough in the face of the deepest East-West crisis since the Cold War.

Tennessee Senator Bob Corker, the top Republican on the Senate Foreign Relations Committee, called the new sanctions "just a slap on the wrist."

"Until Putin feels the real pain of sanctions targeting entities like Gazprom, which the Kremlin uses to coerce Ukraine and other neighbors, as well as some significant financial institutions, I don't think diplomacy will change Russian behavior and de-escalate this crisis," Corker said in a statement.

(Additional reporting by Susan Heavey and Patricia Zengrele in Washington, Karolin Schaps and Maytaal Angel in London, Luiza Ilie in Bucharest and Vladimir Soldatkin inMoscow.; Writing by Jim Loney, editing by Ross Colvin)

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