The Russian Economy Takes Hit – As U.S., EU Impose New Sanctions For Crimea Seizure

President Obama-President Putin

President Obama-President Putin

 

 

 

 

 

 

Russian shares fell  sharply on Friday as investors took fright at tougher than  expected U.S. sanctions against President Vladimir Putin’s inner  circle over Moscow’s seizure of Crimea from Ukraine.

The United States added 20 names to its sanctions blacklist,  including Kremlin banker Yuri Kovalchuk and his Bank Rossiya,  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.

In one immediate consequence, U.S. credit card companies  Visa and MasterCard stopped providing services for  payment transactions with Russia’s SMP bank, owned by the  Rotenberg brothers, the bank said.

President Barack Obama said Washington was also considering  sanctions against key 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.

Diplomats said the mere mention of such a possibility would  chill investment in Russia, charging an immediate price for  Moscow’s action in Crimea and serving as a potential deterrent  to going further.

The EU also extended its personal sanctions to another 12  middle-ranking Russian and Crimean officials.

Though the MICEX share index lurched about 3 percent  lower when trade opened, Putin mocked Obama’s announcement of  the visa bans and asset freezes on the money men and security  officials who accompanied his rise from the mayor’s office in  Saint Petersburg in the 1990s.

But he said Moscow should refrain from further retaliation  against the United States for now.

Prime Minister Dmitry Medvedev, however, 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 contact that should be scrapped  because it no longer applied.

Medvedev said the Kharkiv agreements under which Russia was  to provide cheap gas in return for the lease of the Sevastopol  naval base in Crimea were “subject to denunciation”, giving  Russia a legal right to sue for money back from Ukraine.

Altogether, Kiev owed Moscow $16 billion, he added.

EU LEADERS MEETING

Russia’s parliament rushed to complete ratification of the  annexation of the Black Sea region while European Union leaders  met in Brussels to discuss steps to reduce their long-term  dependence on Russian energy.

The Federation Council upper house approved a treaty on  Friday incorporating Crimea into Russia after the State Duma  lower house did so a day earlier.

The 28 EU leaders underlined their support for Ukraine’s new  leadership, rejected as illegitimate by Moscow, by signing a  political agreement with interim Prime Minister Arseniy  Yatseniuk and promising financial aid as soon as Kiev reaches a  deal with the International Monetary Fund.

The signing “recognizes the aspirations of the people of  Ukraine to live in a country governed by values, by democracy  and the rule of law, where all citizens have a stake in national  prosperity,” European Council President Van Rompuy said at the  ceremony. The accord contained no offer of EU membership.

The IMF is to report next Tuesday on advanced talks with  Ukraine on a major loan program that would be linked to  far-reaching reforms of the former Soviet republic’s shattered  economy.

Polish Prime Minister Donald Tusk said the EU leaders were  discussing using their collective bargaining power to stop  Russia playing off European countries against each other in gas  contacts. Up to now, each EU state has negotiated its own deal  with Moscow, and some refuse even to share contract details with  the European Commission or EU partners.

“We are working hard to make at least one step forward in  the area of making community purchases of energy,” Tusk told  reporters on arrival for the second day of an EU summit.

“In fact it is all about making the EU stronger as a whole  versus energy exporters, so that we have a bigger bargaining  power, so that we can act more as a community. In simple terms,  it is about common purchases of energy.”

TUG OF WAR

An East-West tug-of-war has mounted since Russia occupied  Crimea, home to its Black Sea fleet and a majority of ethnic  Russians, following the overthrow of pro-Russian Ukrainian  President Viktor Yanukovich by street protests last month.

Three months of protests were triggered by Yanukovich’s  refusal to sign an association agreement with the EU, the  political part of which was signed on Friday.

The EU leaders agreed to impose asset freezes and visa bans  on 12 more mid-ranking Russian and Crimean officials and to  consider wider economic sanctions if Russia further destabilizes  the situation in Ukraine.

But they said Europe did not have a legal basis to extend  the personal sanctions against Putin associates without proof of  their direct involvement in the violation of Ukrainian  sovereignty.

“Small measures in the EU are worth more than big measures  in the United States,” a senior European official said, noting  that EU trade with Moscow was 10 times the U.S. volume.

“It’s about cutting off Russia politically and  diplomatically,” the official said, dismissing criticism that EU  sanctions looked weaker than the U.S. measures.

Russian Deputy Finance Minister Alexei Moiseev said he  expected no big immediate impact from western sanctions on  Russia’s financial sector.

He also criticized the downgrading of Russia’s credit  outlook by leading ratings agencies, saying there was no basis  for the move. On Thursday, S&P and Fitch revised to ‘negative’  from ‘stable’ their long-term outlooks on Russia’s debt.

“Our creditworthiness has not changed, of course. We’re  going to have a budget this year that will be better than  expected,” Moiseev said.

 

( Courtesy The World Post & Reuters……..Source…….Our Freelance Contributor in London )

About the Author
Moses M'Bowe, is the Chief International Correspondent, For New Africa Business News And New Africa Daily News.

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