March 21 (Bloomberg) -- Russia completed its annexation of Crimea as the European Union signed an accord with Ukraine and expanded sanctions, escalating the worst standoff between Russia and the West since the Cold War.
President Vladimir Putin signed legislation in Moscow to absorb the Black Sea peninsula and its port, Sevastopol, from Ukraine. In Brussels, the EU and Ukraine sealed the political part of an association agreement, whose rejection last year by ousted Ukrainian President Viktor Yanukovych triggered the dispute between Russia and its former Soviet-era enemies. The 28-nation bloc also blacklisted 12 Russian and Crimean political and military figures.
“I want to congratulate you, all the residents of the country, the citizens of the Russian Federation, residents of Crimea and Sevastopol, on this momentous event,” Putin said after the signing ceremony in the Kremlin. German Chancellor Angela Merkel called the Brussels event “a signal of solidarity” with Ukraine demonstrating “jointly held values.”
The massing of Russian troops near Ukraine’s border and protests by pro-Russian activists in the east and south of Ukraine have raised concerns that Putin may push further into the second most populous former Soviet republic.
Russia’s benchmark Micex Index of stocks fell 1 percent, the most among emerging markets, to 1,307.34 by the close, and yield on government bonds due February 2027 jumped 12 basis points, the most in a week, to 9.42 percent.
Ukrainian Eurobonds due in June extended the biggest weekly rally this year, gaining to 95.77 cents on the dollar at 3:52 p.m. in Kiev from 95.06 yesterday, after the EU deal was signed. West Texas Intermediate crude oil futures climbed as much as 1.4 percent and Brent gained 1.2 percent.
The EU, moving more slowly than the U.S. on sanctions, expanded to 51 individuals its list of Russians and Ukrainians punished with asset freezes and travel bans.
The 12 new names published by the EU today include five officials close to Putin who already face U.S. sanctions. Among them is Russian Deputy Prime Minister Dmitry Rogozin, who mocked his banishment by the U.S. as the product of “some joker,” and two deputy commanders of the Black Sea fleet in charge of Russian forces that occupied Crimea.
EU governments also took aim at the head of the Rossiya Segodnya news agency, Dmitry Kiselyov, who was labeled a “central figure of the government propaganda supporting the deployment of Russian forces in Ukraine.” Businesspeople who faced U.S. bans weren’t sanctioned by the EU.
Acting Ukrainian President Oleksandr Turchynov said his country doesn’t accept Russia’s takeover and won’t allow Russian forces on its mainland. He said Ukraine would submit a plan to demilitarize Crimea.
“Ukraine will do everything in order to free the occupied territories,” Turchynov told reporters in Kiev after a meeting with UN Secretary General Ban Ki-moon.
European leaders signaled Russia may face further repercussions if it doesn’t stop what they see as destabilizing actions in Ukraine.
If Russian troops go into east Ukraine, it “would trigger far-reaching consequences in a broad range of economic areas,” U.K. Prime Minister David Cameron told reporters after the Brussels summit. “That must include the key areas like finance, like the military, like energy,” he said, noting that “Russia needs Europe more than Europe needs Russia.”
The U.S. is focusing on diplomatic and economic tools to de-escalate the conflict with Russia, National Security Adviser Susan Rice told reporters today.
“Our interest is not to see the situation escalate and devolve into hot conflict,” Rice said in Washington. “Our interest is in a diplomatic solution, de-escalation and obviously economic support for Ukraine.”
U.S. President Barack Obama yesterday authorized potential future penalties on Russian industries including financial services, energy, metals and mining, defense and engineering.
The EU said today that Putin hasn’t crossed the destabilization threshold. Special trading relationships that several European countries have with Russia, coupled with the fallout from the debt crisis that came close to wrecking the euro, are frustrating a tougher response.
Sanctions require the agreement of all EU governments, a process that can’t match Putin’s speed in mobilizing troops in Crimea, staging a secession referendum and moving to annexation.
EU governments halted bilateral meetings with Russia and the Group of Seven nations will go back to consulting among themselves, suspending sessions of the G-8 that included Russia.
European leaders also vowed to wean the EU off oil and gas from Russia, echoing a pledge made in 2008 after Russia fought a five-day war with Georgia over a breakaway province.
The bloc relied on Russian suppliers for almost 32 percent of its gas imports and 35 percent of its oil imports in 2010, according to EU data. Interim Ukrainian Prime Minister Arseniy Yatsenyuk called for a reverse flow of natural gas from the bloc to his country.
“I do believe that we need to consider an energy independence of the entire European Union,” Yatsenyuk said in Brussels. “It’s essential for all of us to speak in one single voice, in order not to give anyone including Russia” a means “to use energy as a new nuclear weapon.”
Russia’s Foreign Ministry is proposing retaliatory steps, as “unanswered sanctions may whet appetites to impose new measures,” Deputy Foreign Minister Grigory Karasin told lawmakers.
Putin later said, though, that Russia “should refrain from reciprocal steps for now.” Russia is ready to work with Ukraine’s parliament, Foreign Minister Sergei Lavrov told lawmakers.
Prime Minister Dmitry Medvedev said Ukraine owes Russia $16 billion, including $11 billion for a collapsed 2010 gas supply deal, according to the Kremlin website.
Those targeted by the U.S. yesterday include billionaire Gennady Timchenko, a co-founder of oil trader Gunvor Group Ltd., and Arkady Rotenberg, a former judo partner of Putin whose companies won more than $7 billion of contracts for the Winter Olympics.
It also includes Bank Rossiya in St. Petersburg, which U.S. officials said has $10 billion in assets and is the 17th largest bank in Russia. Bank Rossiya and Rotenberg’s SMP Bank said today that U.S. payment-systems operators MasterCard Inc. and Visa Inc. stopped servicing their cards. Putin plans to open an account at Bank Rossiya, as well as have his presidential salary deposited there, he told reporters today.
“The sanctions for us are absolutely unlawful and they will create artificial and unnecessary barriers on the road to normal communication,” Lavrov said. He added that characterizing Russia’s takeover of Crimea as “annexation” was an “insult” to the region’s citizens and their “undeniable right to express their will.”
Fitch Ratings revised the outlook on Russia’s debt rating to negative today, citing the potential impact of sanctions, while affirming the rating at BBB. Standard & Poor’s yesterday cut its outlook for Russia to negative.
Tensions continue to rise. The Ukrainian government plans to reinforce its eastern border and withdraw troops from Crimea. Obama said yesterday Russia’s continuing military movements carry “dangerous risks of escalation.”
Some U.S. intelligence officials are increasingly concerned that Putin may not stop at Crimea. Russia appears to be sending plainclothes operatives into eastern cities, said two officials who spoke on condition of anonymity to discuss intelligence matters.
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