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Jetliner Crash Adds to Burden of Sanctions Opponents

The deadly crash of a Malaysia Airlines passenger jet in Ukraine makes it harder for businesses to argue against sanctions on Russia as evidence emerges that Russian-backed separatists probably downed the plane, analysts studying the conflict said.

President Barack Obama said that a surface-to-air missile fired from territory held by Ukrainian rebels brought down the airliner, killing 298 people including at least one American citizen yesterday. The rebels have blamed government forces.

“I think it makes it hard for the business community to lobby against sanctions, that’s for sure,” Timothy Ash, chief of emerging markets research at Standard Bank Plc (STAN) in London, said in an an e-mail today. “If Russian involvement is proven, it will be hard for EU countries not to respond and follow the U.S. lead.”

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The Malaysia Airlines (MAS) disaster came a day after the U.S. and 28-nation European Union announced tougher sanctions on Russia, including limits on lending to OAO Rosneft (ROSN) and OAO Gazprombank. The penalties were unveiled after objections to further limits were raised in recent weeks by top business groups, including the U.S. Chamber of Commerce and National Association of Manufacturers.

Neither organization responded today to a request for comment on the latest developments.

Cease Fire

“I don’t think any business or business lobby wants to be in the position right now of trying to prevent the implementation of policies that end the conflict,” Jeffrey Mankoff, deputy director of the Russia and Eurasia Program at the Center for Strategic and International Studies in Washington, said in a phone interview.

Obama today called for a cease-fire in Ukraine, where the government is fighting Russian-backed rebels after Russia annexed the Crimea region in March. Obama said Russia has supplied separatists in Ukraine with arms, training and anti-aircraft weapons, though he said the U.S. isn’t yet certain who downed the Malaysian airliner.

Standoff in Ukraine

“Evidence indicates that the plane was shot down by a surface-to-air missile that was launched from an area that is controlled by Russian-backed separatists inside of Ukraine,” Obama told reporters at the White House.

“I think that this certainly will be a wake-up call for Europe and the world that there are consequences to an escalating conflict in eastern Ukraine, that it is not going to be localized, it is not going to be contained,” he said.

Russia Aggressions

Obama said sanctions, designed to weaken the Russian economy and force an end to the flow of arms to Ukraine, are imposing a cost on Russia.

The Micex Index slid 1.3 percent to 1,422.53 by the close in Moscow, giving a loss since Feb. 28, a day before President Vladimir Putin’s intervention, of 1.5 percent. The yield on local-currency bonds due February 2027 was unchanged at 9.04 percent for a gain in the period to of 68 basis points. The ruble, which has advanced 2.2 percent since February, strengthened 0.2 percent to 35.111 per dollar.

Waging Financial War

Business groups, which succeeded in lobbying the U.S. to normalize trade relations with Russia in 2012, are watching the developments closely.

A statement by the Chamber of Commerce issued July 16, after Obama unveiled stricter sanctions but before the Malaysian plane crash, blamed Russia’s “aggressions” for the measures though questioned the effectiveness of unilateral measures.

“As we carefully analyze the impact of these sanctions on the U.S. economy, we hope multilateral efforts will follow to support a diplomatic solution to this conflict,” Myron Brilliant, the Chamber’s executive vice president, said in the statement.

‘Revive Fears’

Should the U.S. and EU add to their sanctions, it “may weigh further on Russian equities and could revive fears of a tit-for-tat exchange of trade measures that could undermine the increasingly fragile economic recovery in the euro-zone,” according to a research note from Capital Economics Ltd in London. It said there could be a negative impact on supplies from Russia of commodities like nickel, palladium and grains.

Ariel Cohen, a principal with International Market Analysis Ltd., an energy and natural resources political risk advisory firm in Washington, said that so far the Europeans have been “extremely meek and afraid to jeopardize their business relationship with the Russians.”

It’s not yet clear “whether this is enough to drag Europeans into a stronger sanctions regime or not,” he said of the airline disaster. “For that we’ll need to see who did the deed.”

To contact the reporters on this story: Brian Wingfield in Washington at bwingfield3@bloomberg.net; Margaret Talev in Washington at mtalev@bloomberg.net

To contact the editors responsible for this story: Jon Morgan at jmorgan97@bloomberg.net Steve Geimann

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