Putin Strikes Back at Cold War Foes as Ukraine War Rages

Aug. 7 (Bloomberg) -- Bloomberg's Alan Bjerga reports on the Russian ban on food imports from the United States, EU, Canada, Australia and Norway as President Vladimir Putin retaliates against sanctions levied on the nation. (Source: Bloomberg)

President Vladimir Putin struck back at U.S. and European Union sanctions with a ban on a range of food as Ukrainian troops pressed the attack on pro-Russian rebels in a bid to drive them out of their last strongholds.

As officials across Europe weighed the impact of the one-year food curbs, fighting raged around Donetsk and Luhansk in Ukraine’s mainly Russian-speaking easternmost regions, where separatists downed a fighter jet and military helicopter, according to the government in Kiev. North Atlantic Treaty Organization Secretary-General Anders Fogh Rasmussen, in the Ukrainian capital for talks with President Petro Poroshenko, warned Putin to “step back from the brink.”

The restrictions on cheese, fish, beef, pork, poultry, fruit, vegetables and dairy goods announced by Prime Minister Dmitry Medvedev yesterday leaves a $9.5 billion hole for domestic companies and producers from developing nations such as Brazil to fill. The ban, which also applies to Canada, Australia and Norway, is designed to “protect national interests,” according to a decree signed by Putin.

“By seeking revenge against the West, the Kremlin’s decisions will hurt the people of Russia,” Lithuanian President Dalia Grybauskaite said on LRT radio.

Lithuania, a former Soviet republic that’s now a member of the EU and NATO, stands to suffer the most from the Russian sanctions, according to Capital Economics Ltd. Lithuanian exports of products to Russia that are now banned accounted for 2.5 percent of gross domestic product last year, Capital Economics economists led by Neil Shearing said by e-mail.

Iran, Turkey

Russia imported a total of $25 billion of products on the banned list last year, $9.5 billion of which came from nations now blacklisted, according to Shearing. EU food exports to Russia rose 4.3 percent last year to 11.9 billion euros ($15.9 billion), with fresh and dried fruits accounting for 9.1 percent of the total, according to European Commission data.

Denmark, another EU member, exported about $628 million of now-banned products to Russia last year, according to the Danish Agriculture & Food Council.

While condemned by Russia’s former Cold War foes, Putin’s stance on Ukraine has propelled his approval rating to an all-time high of 87 percent at home and he’s now looking for allies abroad. Russian officials said countries including Argentina, Brazil, Iran, Israel, Morocco, Paraguay, Turkey, Uruguay and former Soviet states not in the EU can boost food exports to help fill the void.

Siberian Airspace

“The decision on retaliation wasn’t easy for us,” said Medvedev, who also announced a ban on Ukrainian airlines flying over Russia and a possible review of Siberian airspace use by other carriers. Russia may also introduce “supportive measures” for the car, shipping and aerospace industries, Medvedev told ministers at a meeting in Moscow.

Putin is facing increasing isolation over the rebellion in Ukraine, which ignited when he annexed Crimea in March after a referendum on the Black Sea peninsula that the United Nations rejected by a vote of 100 to 11. More than four months of fighting has killed almost 1,400 people and displaced hundreds of thousands more, according to United Nations estimates.

The EU said it “regrets” the bans and may respond. “We reserve the right to take action as appropriate,” European Commission spokesman Frederic Vincent said in Brussels.

While the ban will harm some countries, “it will likely only amplify the effects of financial and sectoral sanctions imposed on Russia,” Dmitry Polevoy, an economist at ING Groep NV (INGA) in Moscow, said in an e-mailed note. “This will likely add to overall sanction costs via higher food inflation and so will have a widespread effect on households.”

Norwegian Salmon

Medvedev said the sanctions will “clean the shelves for our producers,” while Agriculture Minister Nikolai Fedorov said the impact on inflation will be minimal. Shares of Russia’s largest food retailer, OAO Magnit (MGNT), plunged 5.2 percent, the biggest decline since March 3.

The Micex Index fell as much as 2.1 percent to a three-month low before rebounding to close up 0.1 percent on a report, later confirmed by Russian news service RIA Novosti, that Alexander Borodai, a separatist leader in Ukraine, planned to resign. The ruble weakened as much as 0.6 percent to 36.3767 per dollar in Moscow, its lowest level since March.

Norwegian salmon farmers including Marine Harvest ASA (MHG), the world’s largest, slumped in Oslo, with Marine Harvest, controlled by billionaire John Fredriksen, falling as much as 12 percent, the most in more than six months.

Ukraine will announce sanctions against Russia today, including measures targeting individuals and whole industries, Interfax reported, citing Justice Minister Pavlo Petrenko.

Invasion Threat

Russia, which denies any role in the conflict, remains at odds with the U.S. and its allies over events on the ground in Ukraine. The U.S. joined NATO and Poland in warning about the risk of Russia sending troops into its neighbor, with Russia calling reports of a military buildup on its western border “groundless.” The threat of incursion is “reality,” U.S. Defense Secretary Chuck Hagel said.

The government in Kiev estimates Russia has deployed 45,000 soldiers, 160 tanks and 192 warplanes among other equipment along its border, including soldiers stationed in Crimea. NATO said there’s a threat of Russian troops crossing the border under the “pretext” of a humanitarian mission.

Fighting between separatists and Ukrainian troops continued in the city of Donetsk, where tens of thousands of the city’s 1 million people have fled amid civilian deaths, power cuts and water shortages. Artillery was used by both sides, leaving at least a dozen people dead and wounding dozens, the city council said on its website.

A cease-fire around where a Malaysian Airline System Bhd. (MAS) jet was downed in rebel-held territory was called off for security reasons until at least next week.

In the capital, police clashed with protesters as workers began dismantling camps erected during the unrest that ousted Kremlin-backed President Viktor Yanukovych in February. Fifty policeman were injured and 10 protesters were detained, Interfax reported, citing an Interior Ministry official.

Andriy Parubiy, head of Ukraine’s National Security and Defense Council, resigned, his spokesman confirmed by phone, without giving a reason for his exit.

To contact the reporters on this story: Olga Tanas in Moscow at otanas@bloomberg.net; Daria Marchak in Kiev at dmarchak@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net Brad Cook

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