Russia Dismisses Industrywide Sanctions as Empty Threat

Photographer: Andrey Rudakov/Bloomberg

Economy Minister Alexei Ulyukayev said, threats of wider sanctions are like using “nuclear weapons” as a deterrent. Close

Economy Minister Alexei Ulyukayev said, threats of wider sanctions are like using... Read More

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Photographer: Andrey Rudakov/Bloomberg

Economy Minister Alexei Ulyukayev said, threats of wider sanctions are like using “nuclear weapons” as a deterrent.

Russia is confident it won’t face industrywide sanctions over its policies in Ukraine because trade bans would hurt the world economy, especially Europe’s, Russian Economy Minister Alexei Ulyukayev said.

The threat from the U.S. and Europe that Russia will face sanctions on entire sectors “is like a nuclear weapon -- nobody uses it,” Ulyukayev said yesterday in an interview with Bloomberg Television at the St. Petersburg International Economic Forum.

Ulyukayev dismissed as bluster the vow by U.S. and European leaders that Russia may face bans on energy, finance, arms, manufacturing or other trade if it’s seen as interfering in the May 25 Ukrainian presidential election. While more sanctions may be imposed against individuals “to send a message,” he said, penalties targeting entire sectors go “against fundamental rules” of markets and commerce and “can destroy trade.”

U.S. President Barack Obama and German Chancellor Angela Merkel vowed after a meeting May 2 that tougher sanctions are coming if Russia disrupts Ukraine’s vote on a successor to Viktor Yanukovych, the Russia-backed president who was deposed in a popular uprising in February.

Since then, Russia annexed Ukraine’s energy-rich Crimean peninsula in March and has fomented separatist unrest in other parts of Ukraine with large Russian-speaking populations, according to the U.S. and European governments.

Asset Freezes

In the last two months, the U.S. and European Union have imposed asset freezes and travel bans on scores of Russian and Ukrainian officials and businesspeople close to Russian President Vladimir Putin or linked to unrest in Ukraine. The sanctions also have frozen the assets of several companies said to be linked to destabilizing Russia’s western neighbor.

Last week in London, after meeting foreign ministers from the U.K., France, Germany and Italy, U.S. Secretary of State John Kerry sharpened the threat, saying that “if Russia or its proxies disrupt the elections,” the U.S. and its allies “will impose sectoral economic sanctions as a result.”

Two senior European diplomats said yesterday that the EU hasn’t yet agreed on what sanctions it would impose if this weekend’s elections don’t go well.

First, the EU’s 28 member nations would have to agree that Russia was responsible for any disruption, according to the two diplomats, who weren’t authorized to be identified. The next step would be to agree unanimously on a package of sanctions that correspond to the extent of any Russian interference.

EU Divisions

Division persists among the 28 EU member states between some countries that favor harsher penalties as a deterrent to Russia’s expansionism, and others that rely on Russia for trade, energy or tourism and would prefer to resolve the Ukrainian crisis through more active diplomacy.

Violence or fraud in the May 25 vote would catalyze support in Europe for tougher sanctions, even among nations that are fearful of losing trade with Russia, according to the diplomats.

If broad sanctions are imposed, Russia “will suffer from it, but our partners will suffer also, especially when it comes to Europe,” Ulyukayev said in the interview.

The European Union reported trade in goods with Russia last year valued at $445.6 billion, or 326.3 billion euros, according to the current exchange rate. Trade in goods between the U.S. and Russia was a fraction of that, at $38.1 billion, according to the Commerce Department. Still, U.S. companies such as Exxon Mobil Corp. (XOM) and Caterpillar Inc. (CAT) have significant trade or investment with Russia.

‘Everybody Is Waiting’

The Russian economy minister said the threat of tougher sanctions has hurt Russia’s economy. “Everybody is waiting for sanctions, in standby position,” and that has fueled capital flight, Ulyukayev said.

Ulyukayev downplayed the idea that Russia’s $400 billion deal to supply gas to China for 30 years, signed this week, indicates Russia is looking for alternative trade and energy partners in the event Europe recedes as an economic partner.

“We do not want to cut down our trade with Europe, but we are going to accelerate our trade” with Asia, he said. “It is not a replacement.”

To contact the reporters on this story: Ryan Chilcote in St. Petersburg at rchilcote@bloomberg.net; Indira A.R. Lakshmanan in Washington at ilakshmanan@bloomberg.net; Olga Tanas in St. Petersburg at otanas@bloomberg.net

To contact the editors responsible for this story: John Walcott at jwalcott9@bloomberg.net; Hellmuth Tromm at htromm@bloomberg.net Larry Liebert, Don Frederick

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