U.S., EU Ready New Russian Sanctions as Battles Rage in Ukraine

Jul 29, 2014 9:16 am ET

(For more on Ukraine’s crisis, see EXT2.)

July 29 (Bloomberg) -- The U.S. and the European Union are nearing tougher sanctions against Russia for its role in the fighting that continues to rage in eastern Ukraine.

The sanctions target “key” Russian industries -- energy, defense and finance -- and are being imposed in the face of Vladimir Putin “doubling down” in support of rebels battling Ukrainian troops, U.S. Deputy National Security Adviser Tony Blinken said yesterday. The EU is preparing to announce a list of the Russian president’s “cronies” subject to asset freezes and travel bans after reaching an agreement yesterday. At least 10 soldiers and 22 civilians died in violence in the past day.

“Putin continues to isolate himself in the court of world opinion,” retired U.S. Navy Admiral James Stavridis, ex-supreme allied commander of NATO, said today on Bloomberg Television’s “Surveillance.” The sanctions “look stronger than they did three-four weeks ago. They’re moving in the right direction.”

The U.S. and its allies are seeking to squeeze Putin amid months of pro-Russian unrest in Ukraine’s easternmost Donetsk and Luhansk regions and this month’s Malaysian jet disaster. Up to now, EU governments that depend on Russia for trade and about one-third of their energy supplies haven’t gone as far as the U.S. in hitting Russia’s $2 trillion economy.

Conference Call

The sanctions were agreed on yesterday during a video and phone conference with President Barack Obama, German Chancellor Angela Merkel, French President Francois Hollande, U.K. Prime Minister David Cameron and Italian Premier Matteo Renzi.

Russia hasn’t effectively pressured the separatists to negotiate and hasn’t taken the “concrete steps” asked of it to control Ukraine’s border, Hollande said in a statement.

The names of Europe’s latest targets, approved by diplomats from the 28-nation bloc at a meeting in Brussels, will be published in the EU’s Official Journal “late” tomorrow, an official said on condition of anonymity.

While sanctions already in place are squeezing Russia’s economy, they haven’t forced a political change, according to Blinken, who said the nation has extended support for the rebels in eastern Ukraine since the July 17 downing of Flight MH17. The U.S. also found Russia violated a Cold War-era arms treaty on making, possessing or testing a type of cruise-missile, an Obama administration official said.

The International Monetary Fund cut its forecast for Russia’s 2014 economic growth last week to 0.2 percent from 1.3 percent, citing capital flight fueled by the Ukraine conflict.

Worst Performer

Russia is this year’s worst performer among the world’s 20 biggest stock markets as the dollar-denominated RTS Index dropped 15.9 percent. The benchmark Micex Index rose 1 percent today in Moscow, its first advance in three sessions. Russia canceled its second ruble bond auction in a row today, with the Finance Ministry citing “unfavorable market conditions.”

In the city of Donetsk, home to one million people, residential areas including parks faced artillery fire today, according to the local council. Seventeen civilians were killed amid shelling in the Donetsk region city of Horlivka, while five died and eight were wounded overnight in the neighboring Luhansk region, the Luhansk City Council said on its website.

Russia is backing the insurgents with artillery fire during fighting near the two nations’ border, Ukrainian Defense Ministry spokesman Andriy Lysenko said today in televised remarks. The ministry says Russia is massing troops on its border, supplying the separatists with weapons and other equipment and firing from within its territory.

Crash Site

Russia denies involvement in Ukraine’s crisis, in which the pro-Kremlin insurgents have been driven out of their strongholds in recent weeks, and repeated calls yesterday for a cease-fire.

A key U.S. and EU demand is unfettered access to the Malaysian plane crash site. The jet, which was flying from Amsterdam to Kuala Lumpur, was probably downed by a missile fired by the pro-Russian rebels, U.S. officials have said. All 298 people on board died.

The Organization for Security and Cooperation in Europe said today via Twitter that “intensive planning” is underway to access the area, which Ukraine’s Defense Ministry says is still controlled by armed insurgents. A team of Dutch forensic workers was unable to reach the site today because of fighting along the route, the Dutch ANP news service reported, citing a spokeswoman for Pieter-Jaap Aalbersberg, who heads the mission.

The lack of access paves the way for more sanctions. The U.S. will probably deny Russia access to oil-production equipment for use in the Arctic and deep waters, and add more banks and energy companies to a list of those banned from U.S. financing, New York-based Eurasia Group said in a report.

Robert Kahn, a former Treasury official who’s now a senior fellow for international economics at the Council on Foreign Relations in Washington, said the Obama administration may match the EU’s sanctions list and prohibit additional financial activities such as foreign exchange or commodities trading with certain Russian companies.

“You will see a significant and long-term decline in the Russian economy from these sanctions,” Kahn said by phone.

--With assistance from Kateryna Choursina in Kiev, Kasia Klimasinska and Roger Runningen in Washington and Jonathan Stearns in Brussels.