EU Mulls Harsher Russia Penalties After Company Sanctions

Photographer: Vincent Mundy/Bloomberg

Workers attach equipment to a crane aboard a new offshore jack-up rig, operated by Chernomorneftegaz, in the Odessa gas field in the Black Sea, Ukraine. EU foreign ministers at a meeting yesterday in Brussels froze the assets of oil and natural-gas producer Chernomorneftegaz. Close

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Photographer: Vincent Mundy/Bloomberg

Workers attach equipment to a crane aboard a new offshore jack-up rig, operated by Chernomorneftegaz, in the Odessa gas field in the Black Sea, Ukraine. EU foreign ministers at a meeting yesterday in Brussels froze the assets of oil and natural-gas producer Chernomorneftegaz.

The European Union sanctioned companies for the first time over the Kremlin’s encroachment in Ukraine and advanced plans for broad economic penalties should Russia disrupt the Ukrainian presidential election due May 25.

EU foreign ministers at a meeting yesterday in Brussels froze the assets of oil and natural-gas producer Chernomorneftegaz and a second, smaller company that were expropriated after Russia annexed Crimea. They also added 13 people to a list of individuals facing asset freezes and travel bans for their roles in Crimea and in destabilizing Ukraine, according to the decision published in the EU’s Official Journal after the meeting.

In moving to the penalties against entities, part of so-called stage-two sanctions, the ministers also stepped up the threat of more far-reaching ``stage-three'' penalties, which would involve trade and economic sanctions against entire industries in Russia.

The EU ministers called separatist votes May 11 by pro-Russian groups in eastern Ukraine illegitimate. The referendums “have zero credibility in the eyes of the world,” U.K. Foreign Secretary William Hague told reporters.

The 28-nation EU is urging Russian President Vladimir Putin to back down in the biggest standoff since the Cold War, expanding asset freezes and travel bans and preparing harsher penalties should the Kremlin encroach further in the country.

“It’s very important for us to demonstrate that we are ready for that third tier of sanctions, far-reaching sanctions, depending on Russia’s attitude toward the elections on May 25,” said Hague.

Asset Freezes

German Chancellor Angela Merkel and U.S. President Barack Obama said 10 days ago that Russia’s stance on Ukraine’s election could be a trigger for deeper penalties.

“The European Union will pay particular attention to all parties’ attitude and behavior toward the holding of free and fair presidential elections when deciding about possible future measures,” the EU foreign ministers said in a joint statement yesterday. “Further steps can be taken should events require.”

Such sanctions against Russia, the main supplier of gas to Europe through Ukrainian pipelines, would risk undermining the economies of some member nations. As a result, EU officials are working to assess the impact on the bloc’s countries of any stage-three penalties.

“We all understand that this phase is very sensitive,” Lithuanian Foreign Minister Linas Linkevicius told reporters. “This is really not so easy. I’d like to reiterate that the second phase is by far not yet exhausted.”

U.S. Sanctions

The U.S. imposed sanctions on Chernomorneftegaz on April 11 following the Crimean parliament’s vote March 18 to seize the company’s assets, including its offshore resources.

The other company sanctioned yesterday by the EU is the operator of an oil-storage terminal known as Feodosia that has capacity to stow 1.76 million barrels of crude. Feodosia, owned by Ukraine’s state-controlled Naftogaz, was seized by Crimea after it broke away.

Among the 13 people added to the list are Vyacheslav Volodin, first deputy chief of the Russian presidential staff, Vladimir Shamanov, commander of Russia’s airborne troops, and Vladimir Pligin, head of the Duma’s constitutional-law committee. Sanctions also were imposed on five Ukrainians identified as leading the pro-Russia breakaway movement.

This brings to 83 the number of people sanctioned by the EU in connection with the crisis, including 22 targeted under an initial list for allegedly misappropriating funds and violating human rights in Ukraine.

French Warships

In a sign of the political hurdles to broader measures with a direct economic impact, the French government said it will deliver Mistral helicopter carriers to Russia as planned, rejecting requests from European and U.S. allies to cancel the sale. The French government cited the size of the contract, the penalties that would be due in the event of cancellation and France’s refusal to be the only country taking a significant hit from sanctions.

France refuses to link the contract to the sanctions debate, an official from President Francois Hollande’s office told reporters traveling with the president in Baku, Azerbaijan, on May 11.

German Foreign Minister Frank-Walter Steinmeier said the EU must be ready to hit Russia with stage-three sanctions while being keen to avoid a scenario in which that step is necessary, such as the failure of the May 25 elections to take place.

“Nobody wants that,” Steinmeier told reporters. “We are working together so that, after the escalations of recent days, we finally come to a state in which we can de-escalate the whole situation and thereby make further sanctions unnecessary.”

Persistent Activities

In their joint statement, the EU ministers expressed concerns about the persistent activities of pro-Russian groups in Ukraine.

“The EU is alarmed by the continued efforts by pro-Russian separatists to destabilize eastern and southern Ukraine,” the ministers said. “Continued seizure of public buildings, kidnappings, killings and violation of media freedom by illegal armed groups is unacceptable and must stop.”

As part of the search for a diplomatic settlement, the ministers conferred yesterday with Swiss President and Foreign Minister Didier Burkhalter in his capacity as chairman of the Organization for Security and Cooperation in Europe. The OSCE, which has a fact-finding mission in Ukraine, is seeking to defuse tensions and establish a “national dialogue.”

To contact the reporters on this story: Jonathan Stearns in Brussels at jstearns2@bloomberg.net; Ian Wishart in Brussels at iwishart@bloomberg.net

To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net Larry Liebert, Terry Atlas

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