WASHINGTON/MOSCOW
A pro-Russian separatist from the Vostok (East) battalion stands guard near a T-64 tank in Donetsk, eastern Ukraine, July 16, 2014.
Credit: Reuters/Maxim Zmeyev
WASHINGTON/MOSCOW (Reuters) - President Barack Obama imposed the toughest U.S. sanctions yet on Russia, striking at the heart of Vladimir Putin's powerbase by targeting companies closest to him over what Washington says is Moscow's failure to curb violence in Ukraine.
By imposing penalties on Russia's largest oil producer Rosneft, its second largest gas producer Novatek and its third largest bank Gazprombank, Washington targeted Putin's allies, many of whom have become wealthy during his tenure.
The sanctions, which in effect close medium- and long-term dollar funding, were also put on Vnesheconombank, VEB, a state-owned bank that acts as payment agent for the government, and eight arms firms, including the producer of the Kalashnikov assault rifle.
The sanctions did not freeze those four companies' assets, or stop U.S. firms from doing business with them and several were quick to say it was business as usual. But Russia's rouble-traded stock market and the rouble tumbled on opening.
Rosneft and Novatek were heavily hit, with both down more than 5 percent. The MICEX index was off more than 3 percent.
In his harshest words yet about future ties with Washington, Putin said the sanctions would damage U.S. energy companies and bring relations to a "dead end." A Foreign Ministry official said Moscow would hit back in a way that would be "painful" for Washington.
The chief executive of Russia's VTB bank warned of potentially devastating consequences for the global financial system from sanctions which he called illegal, echoing the sentiment of several Russian business leaders.
"Of course, these sanctions are inappropriate and of course they do not correspond to the spirit or the legal standards of existing international relations, in particular in the field of finance and banking," Andrei Kostin, whose bank is Russia's second largest, was quoted as saying by Itar-Tass news agency.
"I believe that if we do not take measures to stop such unilateral actions, we could see devastating consequences for the global financial system."
EUROPE ON BOARD?
Obama, who warned of more sanctions if Russia did not take concrete steps to ease the conflict, said Putin had so far failed to take steps needed to resolve the crisis peacefully.
"We have emphasized our preference to resolve this issue diplomatically, but that we have to see concrete actions and not just words that Russia, in fact, is committed to trying to end this conflict along the Russia- Ukraine border," he said.
Washington said on Wednesday that up to 12,000 Russian combat forces were back on the border with Ukraine and that weaponry was crossing over to pro-Russian separatists.
Obama's latest round of sanctions came after close consultations with European leaders, who announced a less-ambitious package. The ultimate impact of the U.S. sanctions likely depends on whether the European Union follows suit.
It is the first time the United States has imposed such narrowly targeted measures as it seeks to inflict the maximum impact on Russia, dependent on oil revenues, while avoiding any immediate shock to global oil markets or U.S. and EU companies.
Both have already imposed several rounds of sanctions on senior Russian and Ukrainian officials since the start of the crisis, prompted when former pro-Moscow President Viktor Yanukovich was toppled from power in February and followed a month later by Russia's annexation of Crimea from Ukraine.
But Russian commentators suggested that many in the European Union were forced to support Washington's escalation and that business would suffer.
"The United States thinks that their policy of 'isolating Russia' will be payed for not just by themselves but by EU countries. In Europe, this is very well understood and not everyone is in agreement," Alexei Pushkov, a Putin loyalist and senior member of parliament, said on Twitter.
ALLIES IN FOCUS
But the measures put Putin's allies in focus. Rosneft is led by Igor Sechin, a friend of the Russian leaders since the 1990s and Novatek is run by Gennady Timchenko, who is said by political opponents to have been helped by Putin in creating his former Gunvor oil trading empire.
He sold his stake in that company just before another round of sanctions.
Gazprombank declined to comment.
Sechin, traveling with Putin in Brazil, rounded on the sanctions, saying they were "unjustified, subjective and unlawful, because the company has no role in the Ukraine crisis".
While not worried by earlier asset freezes and travel bans put on him personally, Sechin is increasingly upset over the sanctions, believing that he has done a lot to U.S. investors into Russia.
Rosneft is working with Exxon Mobil Corp on several big oil projects in Russia.
Novatek was not available for comment. VEB declined to comment.
It is not yet clear how large an impact the new measures will have on Rosneft, which had sales of $40 billion in the first quarter, about 8.6 percent of Russia's gross domestic product, or the companies it does business with.
The new sanctions would not appear to prevent Rosneft from selling its oil, but may raise questions about the company’s more than $15 billion worth of oil-related finance arrangements with companies including BP, which now owns almost a fifth of Rosneft, and Glencore.
Morgan Stanley, which is selling the majority of its global physical oil trading operations to Rosneft, declined to comment.
The sanctions stopped short of targeting Russia's Gazprom, the world's largest natural gas producer and provider of much of Europe's energy supplies. Gazprombank is 36 percent-owned by Gazprom.
(Additional reporting by Jeff Mason, Patricia Zengerle and Phil Stewart in Washington, Adrian Croft in Brussels and Josephine Mason, Edward McAllister, and Jonathan Leff in New York; and by Katya Golubkova and Polina Devitt in Moscow, Writing by Elizabeth Piper, Editing by Timothy Heritage)
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