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Russia Threatens Response If Sectoral Sanctions Imposed

Photographer: Genya Savilov/AFP via Getty Images

Ukrainian servicemen sit atop armoured personnel carriers near a statue of Vladimir Lenin in the eastern Ukrainian city of Slavyansk, on July 8, 2014. Close

Ukrainian servicemen sit atop armoured personnel carriers near a statue of Vladimir... Read More

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Photographer: Genya Savilov/AFP via Getty Images

Ukrainian servicemen sit atop armoured personnel carriers near a statue of Vladimir Lenin in the eastern Ukrainian city of Slavyansk, on July 8, 2014.

Russia will respond against the U.S. and its European allies if measures targeting entire industries are levied over the crisis in Ukraine, according to Deputy Finance Minister Sergey Storchak.

“If the situation continues to develop and sectoral sanctions are imposed, it will be necessary to prepare more serious countermeasures,” Storchak said on the ministry’s Facebook page today. “In particular, there may be difficulties with money transfers if sanctions are applied to big banks and the financial sector.”

The European Union and the U.S. are considering further penalties after imposing asset freezes and travel bans on scores of Russian officials and businesspeople close to President Vladimir Putin or linked to unrest in Ukraine. In a May interview, Russian Economy Minister Alexei Ulyukayev likened the threat of punishing industries to “a nuclear weapon” that won’t be deployed in practice.

While the sanctions used so far are having a “serious indirect influence” on the economy, the world’s biggest energy exporter has for now escaped any direct fallout that would affect purchases of foreign equipment, Storchak said. U.S. Treasury Secretary Jacob J. Lew said July 1 that additional sanctions might push Russia into a recession.

The $2 trillion economy is mired in its slowest growth since a 2009 slump. The government predicts gross domestic product will grow 0.5 percent this year, compared with 1.3 percent in 2013. GDP advanced 0.9 percent in the first quarter from a year earlier.

Bigger Impact

“The effect of sanctions was intensified because they coincided with the slower pace of Russia’s economic growth,” Storchak said.

The ruble has lost almost 4 percent against dollar this year, the forth-worst performer among 24 emerging-market currencies tracked by Bloomberg. It traded 0.9 percent weaker at 34.2710 per dollar as of 6:05 p.m. in Moscow.

Representatives of the 28 European Union governments met in Brussels yesterday and agreed that sanctions could be applied as soon as tomorrow to more Russians they accuse of backing insurgents in eastern Ukraine.

The U.S. is also weighing further measures to pressure Russia. The sanctions would would apply to technology used to explore, produce, transport, or deliver natural gas, crude and their refined products, according to people briefed on the plans.

First Opportunity

Any decision by the EU on sanctions this week will build on the asset freezes and travel bans the bloc has already imposed on 61 people. Its first opportunity to consider wider penalties on Russian industry, investment or trade will be at a July 16 summit.

Objections by countries such as Italy, Austria, Slovakia, France and Greece have frustrated moves toward broader sanctions, which require unanimity.

Putin warned in April that further economic sanctions over the Ukraine crisis may lead Russia to reconsider participation by U.S. and European Union companies in energy and other key industries.

Russian banks remain at the same high risk of further sanctions they faced two or three months ago, according to VTB Group Chief Executive Officer Andrey Kostin.

“The sanctions have prompted discussions about the development of new mechanisms of settling payments between different jurisdictions,” Storchak said. “Developing countries have become seriously aware about a more active use of national currencies in international payments.”

The Russian central bank said today that Chairman Elvira Nabiullina discussed national currency swaps with People’s Bank of China Governor Zhou Xiaochuan in Beijing. Putin is scheduled to travel to Brazil next week for a meeting of BRICS nations, which include Brazil, Russia, India, China and South Africa.

To contact the reporter on this story: Olga Tanas in Moscow at otanas@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net Paul Abelsky, Michael Winfrey

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