The U.S. and Europe imposed sanctions on a slate of new Russian government officials and business entities in an effort to pressure President Vladimir Putin and his Ukrainian allies to cease their military activity in eastern Ukraine.
But the West’s action, which was initially expected more than a week ago, fell significantly short of the expansive sanctions Kiev’s government and many members of Congress have been demanding.
Russia’s economy has been weakening for months, in large part due to the crisis in Ukraine, but the Moscow stock market jumped Monday as analysts said investors found the latest sanctions to be less severe than anticipated.
U.S. and European officials said they held off targeting broad sectors of Russia’s economy, including its energy, banking and military industries, due to fears of an economic backlash and concerns that such measures could undermine diplomatic efforts to cooperate with Russia in stabilizing Ukraine.
The White House sanctioned two Russian business executives closely associated with Mr. Putin and the Kremlin— Sergei Chemezov of Rostec Corp, a technology-focused conglomerate, and Igor Sechin of the energy-supplier OAO Rosneft.
The European Union, however, balked at blacklisting any alleged business cronies of Mr. Putin due to a mix of legal, diplomatic and economic considerations. European countries are much more tied to Russia’s energy trade than the U.S.
“There’s still a lot of nervousness in Europe about heading in that direction,” said a senior European official involved in the EU’s sanctions debate. “They don’t want to burn bridges with the Kremlin.”
Divisions between Washington and Brussels over a strategy to target Mr. Putin’s finances contributed to Monday’s limited moves, said U.S. and European officials.
The U.S. imposed travel bans and asset freezes against seven Russian government officials and businessmen, as well as 17 Russian companies, and announced restrictions on any high-technology trade with Moscow that could benefit its defense companies. The EU blacklisted 15 Russian and Ukrainian officials, but withheld their names until Tuesday.
Senior U.S. and European officials are scheduled to meet Wednesday in Brussels to try and further unify their positions on Russia. Senior Obama administration officials insisted they’re preparing to target broad sectors of Russia’s economy if Mr. Putin sends more of his military forces into Ukraine, after annexing its Crimea region last month.
State Department spokeswoman Jen Psaki said the U.S. and Europe have “been working in lock step from the beginning of this crisis” on ways to support Ukraine. “Our sanctions have not exactly matched before. We don’t expect they will exactly match now. But they are complementary,” she said.
The new sanctions signaled the failure of a diplomatic agreement reached April 17 in Geneva among the U.S., EU, Russia and Ukraine that was designed to de-escalate tensions in the former Soviet republic.
U.S. and European officials Monday said Ukraine was abiding by the deal, which required such steps as disarming militias and offering amnesty to protesters who vacate occupied buildings and surrender any weapons, while Russia essentially ignored it.
Both Washington and Brussels drew up their latest lists more than two weeks ago, but held off action to give the Geneva process time to work. The White House formally declared on Monday that Russia is in violation of that deal.
“Since April 17, Russia has done nothing to meet its Geneva commitments and in fact has further escalated the crisis,” it said. “Russia’s involvement in the recent violence in eastern Ukraine is indisputable.”
Russia has blamed the U.S. and the new Ukrainian government in Kiev for the instability. Russian officials have previously brushed off the impact of sanctions, saying that they are counterproductive.
Russian Defense Minister Sergei Shoigu late Monday reiterated Moscow’s denials that its forces are behind the heavily armed groups in eastern Ukraine.
The ministry said Mr. Shoigu spoke to his U.S. counterpart Chuck Hagel by phone and urged him to “turn down the rhetoric.” In an apparent bid to calm tensions, Mr. Shoigu also said that Russian troops near the border had returned to their barracks, after Ukraine said it would not use military units against “the unarmed population.”
The Pentagon confirmed the phone conversation, adding that Mr. Hagel again called “for an end to Russia’s destabilizing influence inside Ukraine and warned that continued aggression would further isolate Russia and result in more diplomatic and economic pressure.”
On Monday, Russia’s former finance minister, Alexei Kudrin, said on Russian radio that Western sanctions may bring economic growth to a halt or even cause a recession. “The economy was slowing down even without sanctions,” said Mr. Kudrin, who left Mr. Putin’s government in 2011.
The Russian government’s official outlook is for 0.5% growth in 2014, but that doesn’t take any sanctions into account. Finance Ministry officials have said repeatedly that their forecast may be too optimistic, given a high capital outflow and rising inflation.
The action taken Monday marked what Mr. Obama called a “calibrated effort” to ramp up the costs for Russia’s actions in Ukraine. “The goal here is not to go after Mr. Putin personally,” Mr. Obama said at a news conference in Manila. “The goal is to change his calculus.”
He added: “We don’t yet know whether it’s going to work.”
The U.S. list had an increased focus on Mr. Putin and his close aides. The Treasury Department identified Mr. Chemezov as having lived in the same apartment complex in East Germany as Mr. Putin, who worked there as an intelligence agent in the 1980s.
Mr. Chemezov leads the sprawling Rostec military-industrial conglomerate, which is 100% state-owned. He’s also a board member at Rosneft, the state-controlled oil giant where Mr. Sechin is president.
Messrs. Chemezov and Sechin are well-known business leaders who deal extensively with Western executives. Listing them may deter U.S.-connected firms from doing business with the companies they run, even though the companies themselves aren’t on the list, according to sanctions experts.
Boeing Co. BA +1.05% and General Electric Co. GE 0.00% both have Russian business ventures with Rostec and its affiliates. The U.S. companies have said in recent weeks that they’re monitoring the situation in Russia but have declined to comment about specific sanctions on Rostec.
Mr. Sechin, whose inclusion on the list was expected, said Rosneft was moving to insulate itself from potential sanctions risks. “I view Washington’s latest steps as a high assessment of the effectiveness of our work and assure our shareholders and partners, including American ones, that this effectiveness won’t be reduced and our cooperation won’t suffer, but will develop dynamically,” he said.
Spokesmen for firms connected with Mr. Chemezov didn’t respond to requests for comment.
Like previous U.S. lists, Monday’s includes Kremlin officials, heads of businesses close to the Russian state, and private firms linked to people targeted previously, such as energy tycoon Gennady Timchenko.
A spokesman for Volga Group, Mr. Timchenko’s holding company, said: “None of the companies mentioned by the U.S. Department of the Treasury has any connection to events in Ukraine. There can now be even less doubt that these announcements and measures are politically motivated.”
In contrast to the financial reaction in Russia, Western markets appeared to be somewhat more concerned about the developments. The British oil major BP BP.LN +2.92% PLC., which acquired a stake in Rosneft following years of conflict at its Russia joint-venture, saw its shares decline on Monday.
BP officials said they are analyzing the latest measures and would comply with all relevant sanctions.
Still, some leading U.S. lawmakers said the White House wasn’t moving aggressive enough to confront Mr. Putin.
Many have called for the arming of Ukraine’s military, something the Obama administration says would be counterproductive, and the imposition of the broad sectoral sanctions.
“After a week of rhetoric from the administration, I had hoped we would have responded to Russia’s blatant violations…with more than just a slap on the wrist,” said the ranking Republican on the Senate Foreign Relations Committee, Sen. Bob Corker of Tennessee.
U.S. officials involved in the debate said there had been discussions about sanctioning the chief executive of state-controlled natural gas export monopoly Gazprom, OGZPY -0.41% Alexei Miller, as well as its affiliated bank. These officials also said they have looked at sanctioning Russia’s largest arms exporter, JSC Rosoboronexport.
These officials said penalties on Rosoboronexport have been complicated by a multibillion contract the Pentagon signed with the Russian firm to supply attack helicopters in support of U.S. military operations in Afghanistan.
U.S. officials wouldn’t discuss why penalties weren’t enacted on Mr. Miller or Gazprombank.
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