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US, Europe increase sanctions against Russia over Ukraine

A pro-Russian separatist from the Vostok (East) battalion posed for a picture atop a T-64 tank in Donetsk, eastern Ukraine.

Maxim Zmeyev/REUTERS

A pro-Russian separatist from the Vostok (East) battalion posed for a picture atop a T-64 tank in Donetsk, eastern Ukraine.

WASHINGTON — President Barack Obama imposed a new round of sanctions against Russia on Wednesday, targeting some of the crown jewels of the country’s financial, energy and defense industries in what officials described as the most punishing measures taken to date by the United States in retaliation for Moscow’s intervention in Ukraine.

The new actions will, among other things, restrict access to American capital markets for Russian giants like the Rosneft oil company and Gazprombank that operate worldwide. While the latest moves did not cut off entire sectors of the Russian economy, they went significantly further than the financial and travel limits imposed previously on several dozen individuals and their businesses.

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The announcement reflected a decision by Obama to take more stringent steps than those taken by the United States’ European allies, which have far deeper economic ties to Russia. Meeting in Brussels, leaders of the European Union refused to match the U.S. measures and instead adopted a more tempered plan that blocks new development loans to Russia and threatens to target more Russian individuals.

The disparate moves suggested a widening gulf in the response to the Ukraine crisis and may dilute the impact of the U.S. actions. But both sides emphasized their continued solidarity on the basic demands that Moscow halt the flow of fighters and weapons across the border with Ukraine, support a cease-fire and help facilitate the release of hostages held by pro-Russian separatists.

“What we are expecting is that the Russian leadership will see, once again, that its actions in Ukraine have consequences, including a weakening Russian economy and increasing diplomatic isolation,” Obama told reporters in an early-evening appearance in the White House briefing room.

Russia quickly denounced the moves and vowed to retaliate. “We condemn those politicians and bureaucrats who are behind such actions,” Sergei A. Ryabkov, the deputy foreign minister, told the Interfax news agency. Ryabkov said that Moscow would respond with countermeasures that would be “quite painful and serious.”

The firms targeted by the capital market restrictions were some of the most prominent in Russia. Rosneft, owned by the state and headed by a longtime adviser to President Vladimir V. Putin, is the country’s largest oil producer. Gazprombank is the financial arm of Gazprom, the state-controlled natural gas giant, which is also headed by a Putin ally. Also targeted were VEB, the state economic development bank, and Novatek, another natural gas producer.

The administration also barred business dealings with eight state-owned defense firms; four Russian government officials, including an aide to Putin and a top official in the Federal Security Service; an oil shipping facility in Crimea, which Moscow annexed; a pro-Russian separatist leader; and the rump rebel organizations in the eastern Ukrainian cities of Donetsk and Luhansk.

The four banks and energy companies will be barred from future loans with maturity over 90 days, meaning they will still be able to conduct day-to-day business with overnight capital but will find themselves shut out of longer-term equity. Some officials and experts said it could raise the cost of borrowing for Russian firms as they seek other creditors who may be wary of future American steps.

Gazprombank has $8.2 billion in debt over 90 days denominated in U.S. dollars, and while some of that may have come through European or other institutions, officials said the vast majority of it could not be financed, cleared and settled without involving participants in the United States capital markets who would be affected by the new measures.

Obama’s actions would not bar the targeted Russian banks or energy companies from doing business with Americans or seize their property. Rosneft, for instance, has major joint ventures with ExxonMobil that will still be permitted. But administration officials pointedly noted that such moves were still possible if Russia did not back down. And they said the latest moves could curb foreign willingness to invest in Russia more broadly.

Douglas A. Rediker, a visiting fellow at the Peterson Institute for International Economics, said the actual exposure to the U.S. capital market may be small. “But the chilling effect on hitting sizable banks and energy companies could cause major second thoughts for doing business and investing far beyond direct U.S. capital market impact,” he said.

Others were more skeptical. “What happens if this doesn’t work?” asked Samuel Charap, a senior fellow at the International Institute for Strategic Studies. The “risks of escalation seem huge,” he added, “and there’s a question of whether this level of pain makes losing Ukraine acceptable to Putin. Unlikely, in my view.”

Several lawmakers from both parties praised Obama’s move, but some Republicans called it inadequate. “Limited actions like those announced today make U.S. threats look hollow,” said Sen. Marco Rubio, R-Fla., adding that Obama was “continuing to avoid decisive action.”

American business groups, including the U.S. Chamber of Commerce and the National Association of Manufacturers, have objected to unilateral sanctions, arguing that they would only hurt domestic businesses while their European competitors swooped in. Obama tried to address that concern on Wednesday.

“These sanctions are significant, but they are also targeted, designed to have the maximum impact on Russia while limiting any spillover effects on American companies or those of our allies,” the president said.

The latest actions reflect a conclusion by U.S. intelligence agencies that Russia has not cut off the flow of fighters and arms across the border to pro-Russian separatists. Ukrainian officials have said they believe Russia was responsible for the downing of a military transport plane on June 14 in Luhansk, a rebel stronghold.

An American official briefing reporters on Wednesday said that the plane was shot down from an altitude of 21,000 feet, and that only a sophisticated weapons system could do that. “Over the past month, the flow of heavy weapons and support for separatists from Russia has actually increased,” the official said.

The White House summoned European Union ambassadors on Monday to a briefing at which they were shown new intelligence on Russian involvement in the Ukrainian turmoil and were pressed to take stronger action. Frustrated after waiting for several weeks for the Europeans to follow through on threats of further sanctions, American officials signaled that Obama was prepared to act unilaterally if necessary.

Obama called Prime Minister David Cameron of Britain and President François Hollande of France, but the critical call was on Tuesday with Chancellor Angela Merkel of Germany, the driving force behind Europe’s response to Russia. Aides said Obama and Merkel coordinated the twin, if imbalanced, actions on Wednesday.

In Brussels, the European Council, which defines the European Union’s political direction and priorities, told the European Investment Bank to suspend new financing for projects in Russia and suggested that the European Bank for Reconstruction and Development follow suit. The council also said it would decide by the end of July on a list of additional sanctions targets, including those “who actively provide material or financial support to the Russian decision-makers.”

That language suggested that Europe might next take aim at Russian oligarchs who are part of Putin’s ruling clique, a group already penalized by the Americans but so far spared by the Europeans.

“Washington seems to have agreed to give Europe more time to accept diplomacy isn’t working by holding back on unilateral sanctions,” said Mujtaba Rahman, the director for Europe at the Eurasia Group in London, which advises investors on the crisis in Ukraine. “But at some point, the Europeans will have to follow the American lead toward economic sanctions targeting whole industry sectors.”

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