EU and US implement new sanctions on Russia despite Ukraine ceasefire

By bne IntelliNews September 12, 2014

Ben Aris in Vienna -


The EU and US implemented new sanctions on Russia on September 12, despite  general agreement that a ceasefire between the Ukrainian government forces and pro-Russian separatists is holding.

The US raised the stakes by adding  Gazprom, Europe’s leading gas supplier, to its sanction list,  a name conspicuously missing from the EU's list. Both the US and EU targetted banks, energy and defence companies, adding new names and tightening existing restrictions to prevent  listed banks and companies from issuing bonds and shares in international capital markets with maturities longer than 30 days.

However, the EU also offered a carrot along with a stick, saying that if peace came to eastern Ukrainian, sanctions could be undone as early as the end of this month.

Moscow has warned it  will respond with its own counter sanctions, which may cap imports of certain western automobiles and clothing. Prime Minister Dmitry Medvedev said the government had also discussed banning EU airlines from Siberian airspace and requiring them to circumvent the country on their Asian routes.

The EU voted for a new sanctions list on September 5, however it held off implementing them to see how the situation developed on the ground in Ukraine. On September 12 it  confirmed that new sanctions against Russia would restrict  loans to three defence companies - Uralvagonzavod, Oboronprom, and United Aircraft Corporation - and three energy companies - Rosneft, Gazprom Neft and Transneft - and it put sanctions  on services for deep drilling at oil deposits, including offshore. 

There is also a new list of 24 people who will be personally sanctioned, many of them in the military fighting in Ukraine as well as several Russian decision-makers and oligarchs.  Sergei Chemezov, head of  Rostec, a state holding company for  defence and technology companies, is the most well known new name.  Mr Chemezov has been on a US sanctions list since April.

The EU also imposed  restrictions against Alexander Zakharchenko, currently the top-ranking rebel leader in Donetsk, who represented the separatists during last week’s ceasefire negotiations, and Vladimir Zhirinovsky,  head of Russia’s far-right Liberal Democratic Party of Russia.

As well as Gazprom, the US added restrictions to Lukoil, the privately owned oil group, and Sberbank, Russia’s largest bank. The banks will be banned  from securing dollar-denominated debt of maturities of 30 days or more,  compared to 90 days under previous sanctions,  and US citizens will be prohibited from dealing in new equity offerings. The US Treasury has also imposed sanctions on Gazprom, Gazprom Neft, Lukoil, Surgutneftegas, and Rosneft that prohibit the export of goods, services and technology supporting Russian deepwater, Arctic offshore and shale projects.

Several unnamed EU members were blamed for delaying the implementation of the sanctions earlier this week. Russia has successfully managed to divide Europeans on the question of sanctions as many countries in the EU have important business ties to Russia. Those are suspected to include Slovakia and Hungary. Some in the EU have expressed fears that if the sanctions are imposed now despite the improving chances for peace in eastern Ukraine, then Russia might be provoked to break the ceasefire and take full control of the regions in east being fought over.

As it is, both sides are having trouble controlling their own militias that they had been using in the proxy war. Ukraine's Ministry of Foreign Affairs reported on September 11 that there have been more than 129 violations of the ceasefire since the Minsk protocol was signed September 5, although it gave no specifics.

The sanctions take effect as the Russian economy has slowed to a crawl and fixed investment in particular has stalled. The state has already been forced to bail out large state banks – VTB Group and the Russian Agricultural Bank – while many more smaller private banks are close to the  minimum capital adequacy ratios. In addition, a large funding gap has opened up between the deposits that banks are collecting and the credits they are extending, which is being filled by the Central Bank of Russia; the CBR has now extended some RUB7 trillion in funding to Russian banks – as much as it extended during the worst days of the 2008/2009 crisis. Russia has enough in hard currency reserves to keep this up for a while, but it cannot last forever.













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