Obama Said to Ready Sanctions on Russian Industries

The U.S. is preparing sanctions aimed at specific areas of the Russian economy, including energy and technology, as the Obama administration readies the next steps to pressure Russia over the Ukraine crisis, according to three people briefed on the plans.

The sanctions would apply to technology used to explore, produce, transport, or deliver natural gas, crude and their refined products, according to two of the people, who asked for anonymity, citing the sensitivity of the deliberations.

Further U.S. action may await the results of a European Union summit scheduled to begin tomorrow. President Barack Obama is counting on support from the EU, which has deeper economic ties with Russia than the U.S., to make any wider sanctions more effective.

Any U.S. move to target sectors of Russia’s economy would mark an escalation of penalties against Russian President Vladimir Putin’s government for fomenting turmoil in Ukraine. Putin yesterday asked lawmakers in Moscow to rescind the authorization they gave him on March 1 to use force in Ukraine, a conciliatory gesture that sent shares and the ruble higher.

White House press secretary Josh Earnest, while not addressing specific steps the U.S. may take, said the administration has “evaluated a range of responses” to get Russia to back down in Ukraine. Any sanctions will be more effective “if many of Russia’s trading partners are cooperating in that effort,” he said.

On Agenda

While some EU members have expressed concern about the impact of new sanctions on their economies, German Chancellor Angela Merkel told parliament today that broader penalties against Russia are “back on the agenda” if progress isn’t made to end the Ukrainian conflict. Germany is Russia’s largest trading partner.

The U.S. government has held discussions with Canada, the U.K. and Australia on this latest round of penalties, said one of the people.

The turmoil and threat of additional sanctions has taken a toll on Russia. Russia’s $2 trillion economy is facing stagnation this year, with the central bank forecasting growth of 0.4 percent in 2014, the least since a recession in 2009.

In Moscow, the Micex Index (INDEXCF) fell today from an eight-month high. The gauge plunged 2.4 percent to 1,481.95 in Moscow after jumping to the highest since Oct. 22 yesterday.

Business Lobbies

There is concern in the U.S. about an economic impact as well. Two of the largest U.S. business groups are preparing to break ranks with the Obama administration over any further penalties on Russia, citing potential damage to U.S. companies.

The U.S. Chamber of Commerce and National Association of Manufacturers are preparing to run newspaper advertisements tomorrow in the New York Times, Wall Street Journal and Washington Post, warning that more sanctions risk harming U.S. workers and businesses, said a person familiar with the plans, who asked not to be identified to discuss private deliberations.

Earnest said Obama is “mindful of not putting American companies” at a “significant competitive disadvantage.”

Linda Dempsey, vice president of international economic affairs for NAM, said the group is “heightening the level of communication right now” after months of discussion with the administration and longstanding opposition to unilateral sanctions that may hurt U.S. business without having the desired impact.

Industry Reaction

“A U.S.-only approach here is not going to increase security in the region,” Dempsey said. “Taking action for action’s sake is not the way forward.”

Sally-Shannon Birkel, a spokeswoman for the chamber, declined to comment.

Under the latest plans being considered by the U.S., product sales and transfers of technology covered by the sanctions would be subject to case-by-case reviews, said one of the people, with the government being allowed to approve, reject or delay any transactions.

One of the people briefed on the planning said that administration officials had portrayed that approach as one that would allow them to use a scalpel to target individuals and to ratchet pressure up and down as events in Ukraine unfold.

U.S.-based companies are the largest source of foreign investment in Russia, primarily in technology and financial services, according to a 2013 report by Ernst & Young. They include General Electric Co. (GE), Boeing Co. (BA), and Caterpillar Inc. (CAT)

The business associations’ advertisements assert that “the only effect” of additional sanctions would be “to bar U.S. companies from foreign markets and cede business opportunities to firms from other countries,” according to a copy provided by the person familiar with the plans.

The ads, written as a joint statement from Jay Timmons and Thomas Donohue, respectively the presidents of the manufacturers association and the chamber, don’t name Obama. They instead address actions under consideration by “some U.S. policymakers.”

To contact the reporters on this story: David Wethe in Houston at dwethe@bloomberg.net; Mike Dorning in Washington at mdorning@bloomberg.net

To contact the editors responsible for this story: Steven Komarow at skomarow1@bloomberg.net; Susan Warren at susanwarren@bloomberg.net Joe Sobczyk, Michael Shepard

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