U.S. Plans to Hit Putin Inner Circle With New Sanctions

Photographer: Andrey Rudakov/Bloomberg

Russian President Vladimir Putin. Close

Russian President Vladimir Putin.

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Photographer: Andrey Rudakov/Bloomberg

Russian President Vladimir Putin.

The U.S. and European Union will impose new sanctions as early as today on Russian companies and individuals close to President Vladimir Putin over the escalating crisis in Ukraine, officials said.

“We will be looking to designate people who are in his inner circle, who have a significant impact on the Russian economy,” Deputy White House National Security Adviser Tony Blinken said on CBS’s “Face the Nation” program yesterday. “We’ll be looking to designate companies that they and other inner-circle people control. We’ll be looking at taking steps as well with regard to high-technology exports to their defense industry. All of this together is going to have an impact.”

The seizure of international inspectors by pro-Russian separatists last week escalated the crisis after Russia began military exercises on Ukraine’s border where the North Atlantic Treaty Organization says Putin has massed about 40,000 troops. Ukraine’s southern air-defense forces are in “operational readiness,” the Defense Ministry said yesterday on its website.

Among those who may be hit by sanctions is Igor Sechin, the chief executive officer of OAO Rosneft (ROSN), according to people familiar with developments. Sechin is a Putin confidant.

Photographer: Kirill Kudryavtsev/AFP via Getty Images

Ukrainian interior troops stand guard at a check-point about 30km from the eastern Ukrainian city of Slavyansk, on April 27, 2014. Close

Ukrainian interior troops stand guard at a check-point about 30km from the eastern... Read More

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Photographer: Kirill Kudryavtsev/AFP via Getty Images

Ukrainian interior troops stand guard at a check-point about 30km from the eastern Ukrainian city of Slavyansk, on April 27, 2014.

EU Discussions

Representatives of the 28 EU states will meet today to widen a list of people subject to asset freezes and travel bans, an official from the bloc said over the weekend. The sanctions will target 15 Russians in positions of power, another diplomat said. Both asked not to be identified because of the sensitivity of the matter.

“What we will hear about in the coming days is an expansion of existing sanctions, measures against individuals or entities in Russia,” U.K. Foreign Secretary William Hague told Sky News television yesterday. “Already we have seen more than $60 billion of capital flight out of Russia so far this year, and serious falls in the Russian stock market. So no one should underestimate the impact on Russia and Russia’s own interests of continued escalation of this crisis.”

Russia has stoked tensions in Ukraine with “threatening” military maneuvers and by “taking no concrete steps” to implement an April 17 accord meant to calm the crisis, the Group of Seven nations -- the U.S., the U.K., France, Germany, Italy, Canada and Japan -- said in an April 25 statement.

Military Drills

Early this morning, a group of 30 gunmen seized a state security building in the city of Konstantinovka, the press secretary of the Donetsk regional police said by phone.

Financial Warfare: an Alternative to Military Force

Ukraine’s foreign minister, Andriy Deshchytsia, said he would travel to Vienna to discuss with international officials Ukraine’s contention that Russia was not complying with the Geneva agreement and that Putin’s administration was not allowing monitors to observe its military drills.

“We are going to discuss today in Vienna the implementation of the Vienna document that allow international observers to monitor military drills that now have started near Ukraine’s borders,” Deshchytsia told Bloomberg television today. “Russia does not want to comply with it.”

In the wake of those capital outflows and a credit-rating downgrade by Standard & Poor’s, Russia’s central bank unexpectedly raised its key interest rate to 7.5 percent on April 25.

Markets Sag

Russia’s Micex Index fell 1.38 percent to 1,262.46 by 11:39 a.m. bringing its loss this year to 16 percent. The ruble has lost almost 9 percent this year against the dollar, the second-worst performance among 24 emerging currencies tracked by Bloomberg after Argentina’s peso.

Sanctions previously imposed by the U.S., the EU, Canada and other allies targeted a number of Putin’s associates and top officials, as well as St. Petersburg-based OAO Bank Rossiya.

Executives at OAO Gazprombank, Russia’s third-largest lender, are preparing for possible sanctions, two people with knowledge of the deliberations said last week, while development lender Vnesheconombank is taking precautions, according to a person familiar with talks at the lender.

U.S. Senator Bob Corker of Tennessee, the top Republican on the Foreign Relations Committee, called on President Barack Obama to impose sanctions on four of Russia’s largest banks and OAO Gazprom (OGZD), the country’s gas-export monopoly.

Largest Banks

“Hitting four of the largest banks there would send shock waves through the economy,” Corker said on CBS yesterday. “I just think we need to hit him much more toughly,” he said of Putin.

Some U.S. officials warn that broader sanctions, those that affect ordinary Russians and not just the oligarchs in Putin’s inner circle, may backfire to the Russian leader’s benefit. Ordinary Russians would probably rally behind Putin and allow him to blame the U.S. and its allies for the country’s economic woes.

Three officials, all of whom requested anonymity to discuss internal policy deliberations, said financial and other sanctions are unlikely to deter Putin. His goals are to destabilize Ukraine; ensure Russian domination of portions of it, as well as the Transnistria region of Moldova; and make the government in Kiev subservient to his.

China’s government said it did not support sanctions.

“We believe that sanction will not help solve the problem but, on the contrary, escalate the situation,” Chinese Foreign Ministry spokesman Qin Gang said. “Sanctions will not serve the interests of any party.”

Coordinated Measures

The planned EU moves are not set to include broader trade, financial and economic measures against Russia, known as “stage three” sanctions. Hague said work on those is continuing.

“It’s going to be more effective if everybody signs on and everybody’s committed,” Obama told a news conference yesterday in Putrajaya, Malaysia. “We’re going to be in a stronger position to deter Mr. Putin when he sees that the world is unified and the United States and Europe is unified, rather than this is just a U.S.-Russia conflict.”

In addition to sanctions, some U.S. Republican lawmakers, led by Arizona Senator John McCain, are pushing the Obama administration to send anti-tank, anti-missile and other weapons to Ukraine’s military. Blinken, the White House adviser, dismissed that suggestion, saying the administration focus is on economic assistance.

Weapons “wouldn’t make a difference in terms of their ability to stand up to the Russians,” Blinken said on CNN. The U.S. will focus on “professionalizing” Ukraine’s military, while stopping short of providing lethal aid, he said.

Meanwhile, pro-Russian separatists freed one international observer from a group of 11 taken captive three days ago in the eastern Ukrainian city of Slovyansk. Negotiators for the Organization for Security and Cooperation in Europe left the city following the release of the observer, a Swedish officer who is diabetic, the Russian news agency RIA Novosti reported.

To contact the reporters on this story: David Lerman in Washington at dlerman1@bloomberg.net; Andrew Atkinson in London at a.atkinson@bloomberg.net; Daria Marchak in Kiev at dmarchak@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net; John Walcott at jwalcott9@bloomberg.net Michael Winfrey, James M. Gomez

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