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New US sanctions hit top Russian firms

Washington, July 17, 2014

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, 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 US sanctions would hurt US 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 US 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 was down around 4.5 percent and Novatek 7.5 percent. The MICEX index 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.

EU SANCTIONS

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 US 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 development banks.

Moscow said the EU had "succumbed to the blackmail of the US administration" to follow Washington in imposing sanctions. Some Russian officials predicted Brussels would baulk at the cost of the US measures.

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. - Reuters




Tags: Russia | Ukraine | Sanctions | Obama |

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