European Firms Seek to Minimize Russia Sanctions
By ALISON SMALE and DANNY HAKIM
Radovan Stoklasa/Reuters
About a quarter of the European Union’s natural gas
supplies originate in Russia. Pictured, a border delivery station in
eastern Slovakia that distributes gas from Russia into western Europe.
As businesses, particularly in the energy sector, campaign to maintain
ties with Moscow, the world’s seven wealthiest nations said on Friday
they would impose additional sanctions on Russia resulting from its
military action in Ukraine.
European firms seek to minimize Russia sanctions
With the showdown over Ukraine escalating
and President Obama warning Moscow of a tough new round of sanctions,
Russia and its allies in the European private sector are conducting a
separate campaign to ensure that they can maintain their deep and
longstanding economic ties even if the Kremlin orders further military
action.
European banks and businesses are far more exposed to the Russian economy than are their American counterparts. Trade between the European Union and Russia amounted to almost $370 billion in 2012, while United States trade with Russia was about $26 billion that year.
Read MoreSwift, new sanctions to be imposed on Russia
As a result, they have lobbied energetically to head off or at least dilute any sanctions, making it hard for American and European political leaders to come up with a package of measures with enough bite to influence Moscow's behavior in Ukraine.
Since Russia's annexation of Crimea, energy companies, exporters, big users of Russian natural gas and investors with stakes in Russia have counseled caution. "Neither in energy terms, nor politically, should we turn away from Russia," said Rainer Seele, the chairman of Wintershall, a subsidiary of the large German-based chemical company BASF that is deeply entwined in Russia's oil and natural gas trade.
European banks and businesses are far more exposed to the Russian economy than are their American counterparts. Trade between the European Union and Russia amounted to almost $370 billion in 2012, while United States trade with Russia was about $26 billion that year.
Read MoreSwift, new sanctions to be imposed on Russia
As a result, they have lobbied energetically to head off or at least dilute any sanctions, making it hard for American and European political leaders to come up with a package of measures with enough bite to influence Moscow's behavior in Ukraine.
Since Russia's annexation of Crimea, energy companies, exporters, big users of Russian natural gas and investors with stakes in Russia have counseled caution. "Neither in energy terms, nor politically, should we turn away from Russia," said Rainer Seele, the chairman of Wintershall, a subsidiary of the large German-based chemical company BASF that is deeply entwined in Russia's oil and natural gas trade.
Andrey Rudakov | Bloomberg | Getty Images
Gazprom
Russia is already paying a price for its
foreign policy, experts say, with capital leaving the country and the
ruble falling steadily, causing the government to raise interest rates.
Its government bonds were downgraded on Friday to near junk status by
Standard & Poor's in the latest indication that its economy is
already under growing pressure.
Read MoreS&P downgrades Russia to BBB- amid capital outflows
In a statement on Friday, the White House said Mr. Obama had discussed Ukraine with Chancellor Angela Merkel of Germany, Prime Minister David Cameron of Britain, President François Hollande of France and Prime Minister Matteo Renzi of Italy. Mr. Obama said only that the leaders had "agreed to work closely together, and through the G-7 and European Union, to coordinate additional steps to impose costs on Russia," and European governments, without being specific, signaled that they were ready to take some kind of action.
On Friday evening, a senior Obama administration official said sanctions against more Russian individuals could be announced as early as Monday. Two Western officials said that the European Union would impose sanctions against 15 Russians.
And late Friday night, the White House released a statement from the Group of 7, which said: "We have now agreed that we will move swiftly to impose additional sanctions on Russia.
"Given the urgency of securing the opportunity for a successful and peaceful democratic vote next month in Ukraine's presidential elections," the statement added, "we have committed to act urgently to intensify targeted sanctions and measures to increase the costs of Russia's actions."
The phone discussion among the leaders came at the end of a week in which executives of the giant Russian gas company, Gazprom, stumped across the European capitals, rallying support from customers and suppliers against increased tensions and making the case that Russia and Europe were long-term economic partners who should not let temporary crises cut their ties. Gazprom is 50 percent owned by the Russian government.
"Sanctions will not help anybody, they would not just hurt Russia, but also Germany and Europe as a whole," Mr. Seele of Wintershall has said.
Read MoreS&P downgrades Russia to BBB- amid capital outflows
In a statement on Friday, the White House said Mr. Obama had discussed Ukraine with Chancellor Angela Merkel of Germany, Prime Minister David Cameron of Britain, President François Hollande of France and Prime Minister Matteo Renzi of Italy. Mr. Obama said only that the leaders had "agreed to work closely together, and through the G-7 and European Union, to coordinate additional steps to impose costs on Russia," and European governments, without being specific, signaled that they were ready to take some kind of action.
On Friday evening, a senior Obama administration official said sanctions against more Russian individuals could be announced as early as Monday. Two Western officials said that the European Union would impose sanctions against 15 Russians.
And late Friday night, the White House released a statement from the Group of 7, which said: "We have now agreed that we will move swiftly to impose additional sanctions on Russia.
"Given the urgency of securing the opportunity for a successful and peaceful democratic vote next month in Ukraine's presidential elections," the statement added, "we have committed to act urgently to intensify targeted sanctions and measures to increase the costs of Russia's actions."
The phone discussion among the leaders came at the end of a week in which executives of the giant Russian gas company, Gazprom, stumped across the European capitals, rallying support from customers and suppliers against increased tensions and making the case that Russia and Europe were long-term economic partners who should not let temporary crises cut their ties. Gazprom is 50 percent owned by the Russian government.
"Sanctions will not help anybody, they would not just hurt Russia, but also Germany and Europe as a whole," Mr. Seele of Wintershall has said.
Alexander Medvedev, the No. 2 at Gazprom,
said that his company had done everything possible to keep gas flowing
to both Ukraine and Europe, but that the time of a financial reckoning
was near, alluding to the $18.5 billion that he said Ukraine owed. How,
he asked, can a publicly traded company like Gazprom keep contractual
promises and make needed investments with such a cash shortfall from a
slippery customer? Perhaps, he suggested, Ukraine's Western friends
would like to help meet these bills.
About a quarter of the European Union's gas supplies originate in Russia. More than half of Russia's exports go to the European Union, and 45 percent of its imports come from the European Union, according to European statistics.
Read More Some Western firms could face Russian retaliation
The pace at which the Ukraine crisis is changing the economics and geopolitics of Europe became clear again on Friday when Ms. Merkel endorsed a suggestion from Prime Minister Donald Tusk of Poland for a common energy policy for the 28-nation European Union. But even the general embrace of the idea by Germany suggests that European Union countries might be prepared to pull together with the kind of unified response that Russia and Russian businesses fear could lead to Moscow's isolation.
No European industry has been as open in its support of Russia as the energy industry. Executives have publicly voiced skepticism about the effectiveness of sanctions, lobbied behind the scenes to head them off and traveled to Russia, on at least one occasion to pose with Russia's president, Vladimir V. Putin. And the Russians, while publicly playing down the effects of sanctions, have been trying to exert influence in Brussels and elsewhere, lobbyists said.
In an interview on Friday, Gerhard Roiss, the chief executive of the Austrian oil and gas supplier OMV, which has been working with Gazprom for five decades, said, "You cannot talk about sanctions if you don't know the outcome of sanctions."
"Europe has developed over the last 50 years into a region where we have a division of labor and a division of resources, and this means in concrete terms that energy is imported from Russia and products — automotive or machinery — are exported from European countries into Russia," he added.
About a quarter of the European Union's gas supplies originate in Russia. More than half of Russia's exports go to the European Union, and 45 percent of its imports come from the European Union, according to European statistics.
Read More Some Western firms could face Russian retaliation
The pace at which the Ukraine crisis is changing the economics and geopolitics of Europe became clear again on Friday when Ms. Merkel endorsed a suggestion from Prime Minister Donald Tusk of Poland for a common energy policy for the 28-nation European Union. But even the general embrace of the idea by Germany suggests that European Union countries might be prepared to pull together with the kind of unified response that Russia and Russian businesses fear could lead to Moscow's isolation.
No European industry has been as open in its support of Russia as the energy industry. Executives have publicly voiced skepticism about the effectiveness of sanctions, lobbied behind the scenes to head them off and traveled to Russia, on at least one occasion to pose with Russia's president, Vladimir V. Putin. And the Russians, while publicly playing down the effects of sanctions, have been trying to exert influence in Brussels and elsewhere, lobbyists said.
In an interview on Friday, Gerhard Roiss, the chief executive of the Austrian oil and gas supplier OMV, which has been working with Gazprom for five decades, said, "You cannot talk about sanctions if you don't know the outcome of sanctions."
"Europe has developed over the last 50 years into a region where we have a division of labor and a division of resources, and this means in concrete terms that energy is imported from Russia and products — automotive or machinery — are exported from European countries into Russia," he added.
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Mr. Roiss met with Gazprom's chief executive this week and reaffirmed their business ties. He pointed out that this was hardly the first political crisis the sides had faced. The year Russian gas first started flowing into Austria, 1968, was the same year the Soviets invaded the former Czechoslovakia. "We've had a crisis situation several times, but if you see it over the 50 years, natural gas was not used as a weapon, and we should not use gas as a weapon," he said.
Before the call between the European leaders and Mr. Obama, Ms. Merkel called Mr. Putin in what appeared to be a last warning to fulfill the accord reached in Geneva last week to reduce tensions in Ukraine. Minutes later, a Kremlin statement put a different spin on the call, saying that both Mr. Putin and Ms. Merkel had called for three-party talks on Russian gas supplies to Europe through Ukraine.
Whether that was an indication that Mr. Putin now feared that tough sanctions loom — sanctions that Western leaders argue would inflict more harm on Russia's heavily oil- and gas-dependent economy than on Europe — was not clear.
Mr. Medvedev's tour of Europe, and what he said was constant contact with the European Union's energy commissioner, Guenter Oettinger, suggested that Russian business was very worried about losing what it has carefully built.
Do not forget, Mr. Medvedev urged Europe, that Gazprom has for decades — right through the Cold War and multiple East-West crises — been a reliable supplier. It has no intention of leaving customers in the lurch now.
"We are not planning to cut gas to Ukraine," Mr. Medvedev said. "We just would like to receive payment for the gas that we are going to deliver."
In 2006 and especially 2009, when Ukraine and Russia were locked in disputes over natural gas prices, European customers experienced delivery shortfalls for which Gazprom blamed Ukraine's siphoning of supplies intended for Europe to meet its own domestic needs.
"There never were, are not and won't be plans to cut" delivery, Mr. Medvedev said of the current situation. For one thing, he added, "we are too much dependent on the cash flow from Europe."
Russian business — not to mention rich Russians who have eagerly bought property everywhere from London to France, Berlin and the Czech spa city of Karlovy Vary — is now not just embedded in the energy supply and financial markets of Europe. As any soccer fan could see in the Champions League matches this week, Gazprom is a main sponsor of the sport in Europe.
Whether that has bought much independence from the image of the Russian government is questionable. Pressure has risen markedly on German business since Joe Kaeser, the chief executive of Siemens, met Mr. Putin in late March. Mr. Kaeser was not admonished outright, but Ms. Merkel had a distinctly frosty face for him two days later when both attended a signing of new contracts with China.
BP has a 19.75 percent stake in Rosneft, the Russian oil giant. "We're monitoring the situation, and clearly we're committed to our investment in Russia," said Toby Odone, a BP spokesman. "People keep asking us to speculate what would happen if such and such a sanction were imposed, and we're not going to do that. As things stand, our interests in Russia have not been affected by the measures that have so far been imposed."
Mr. Roiss said he had spoken to officials "on the European level and on the national level."
"This is not an issue of lobbying, it's an issue of saying what you think," he said. "My feedback from talking to politicians, wherever they are, is that people see that this is quite a broad issue, that one should not really mix too much into politics."
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Mr. Roiss met with Gazprom's chief executive this week and reaffirmed their business ties. He pointed out that this was hardly the first political crisis the sides had faced. The year Russian gas first started flowing into Austria, 1968, was the same year the Soviets invaded the former Czechoslovakia. "We've had a crisis situation several times, but if you see it over the 50 years, natural gas was not used as a weapon, and we should not use gas as a weapon," he said.
Before the call between the European leaders and Mr. Obama, Ms. Merkel called Mr. Putin in what appeared to be a last warning to fulfill the accord reached in Geneva last week to reduce tensions in Ukraine. Minutes later, a Kremlin statement put a different spin on the call, saying that both Mr. Putin and Ms. Merkel had called for three-party talks on Russian gas supplies to Europe through Ukraine.
Whether that was an indication that Mr. Putin now feared that tough sanctions loom — sanctions that Western leaders argue would inflict more harm on Russia's heavily oil- and gas-dependent economy than on Europe — was not clear.
Mr. Medvedev's tour of Europe, and what he said was constant contact with the European Union's energy commissioner, Guenter Oettinger, suggested that Russian business was very worried about losing what it has carefully built.
Do not forget, Mr. Medvedev urged Europe, that Gazprom has for decades — right through the Cold War and multiple East-West crises — been a reliable supplier. It has no intention of leaving customers in the lurch now.
"We are not planning to cut gas to Ukraine," Mr. Medvedev said. "We just would like to receive payment for the gas that we are going to deliver."
In 2006 and especially 2009, when Ukraine and Russia were locked in disputes over natural gas prices, European customers experienced delivery shortfalls for which Gazprom blamed Ukraine's siphoning of supplies intended for Europe to meet its own domestic needs.
"There never were, are not and won't be plans to cut" delivery, Mr. Medvedev said of the current situation. For one thing, he added, "we are too much dependent on the cash flow from Europe."
Russian business — not to mention rich Russians who have eagerly bought property everywhere from London to France, Berlin and the Czech spa city of Karlovy Vary — is now not just embedded in the energy supply and financial markets of Europe. As any soccer fan could see in the Champions League matches this week, Gazprom is a main sponsor of the sport in Europe.
Whether that has bought much independence from the image of the Russian government is questionable. Pressure has risen markedly on German business since Joe Kaeser, the chief executive of Siemens, met Mr. Putin in late March. Mr. Kaeser was not admonished outright, but Ms. Merkel had a distinctly frosty face for him two days later when both attended a signing of new contracts with China.
BP has a 19.75 percent stake in Rosneft, the Russian oil giant. "We're monitoring the situation, and clearly we're committed to our investment in Russia," said Toby Odone, a BP spokesman. "People keep asking us to speculate what would happen if such and such a sanction were imposed, and we're not going to do that. As things stand, our interests in Russia have not been affected by the measures that have so far been imposed."
Mr. Roiss said he had spoken to officials "on the European level and on the national level."
"This is not an issue of lobbying, it's an issue of saying what you think," he said. "My feedback from talking to politicians, wherever they are, is that people see that this is quite a broad issue, that one should not really mix too much into politics."
COPY http://www.cnbc.com
Defying Moscow, Ukraine Threatens to Blockade Pro-Russian Militants
By ANDREW HIGGINS and C. J. CHIVERS
As tension mounted, the interim authorities said any crossing of the
country’s borders by Russian troops would be treated as an invasion.
KIEV,
Ukraine — The interim central government in Kiev threatened to blockade
the eastern city of Slovyansk on Friday, defying warnings from Moscow
not to confront pro-Russian militants entrenched in towns across eastern
Ukraine.
In
another affront to the Kremlin, Kiev also warned that any Russian
troops crossing the border on maneuvers would be treated as an invasion.
The
declarations heightened concerns that the government’s efforts to move
against forces aligned with Moscow would incite a Russian military
incursion that the Kremlin would characterize as a humanitarian or
peacekeeping initiative.
But
on Friday night Western powers sought to stay Russia’s hand. “We have
now agreed that we will move swiftly to impose additional sanctions on
Russia,” the Group of 7 said in a statement issued by the White House.
The sanctions could be imposed as early as Monday.
The
statement was released hours after the Pentagon said that Russian
fighter jets had made about half a dozen incursions into Ukrainian
airspace over the previous 24 hours.
Col.
Steven H. Warren, a Pentagon spokesman, said that Gen. Martin E.
Dempsey, the chairman of the Joint Chiefs of Staff, had spoken with his
Russian counterpart on Thursday, but offered no details.
Also Friday, a group of foreign military observers traveling under the auspices of the Organization for Security and Cooperation in Europe,
along with their Ukrainian hosts, were detained by pro-Russian
separatists in Slovyansk, the separatists and the Ukrainian government
said.
The
government said seven foreign observers and five Ukrainian military
officers had been seized. The detention appeared to give the rebels, who
on Thursday had released an American journalist held for three days, a
new set of foreign prisoners.
Unconfirmed
early reports had identified the detainees as monitors from the
security organization, but the organization’s officials said all of
their permanent staff members and monitors had been accounted for.
Tatyana Baeva, a spokeswoman in Vienna, said the reports evidently
referred to a separate German-led group of unarmed military inspectors.
200 Miles
200 Miles
BELARUS
ESTONIA
RUSSIA
Moscow
LATVIA
Kiev
LITHUANIA
RUSSIA
UKRAINE
Slovyansk
BELARUS
POLAND
Donetsk
Dnieper
River
Kiev
Mariupol
UKRAINE
Sea of
Azov
Dnieper
River
CRIMEA
MOLDOVA
ROMANIA
CRIMEA
Black Sea
The German Embassy in Kiev referred questions to the German Defense Ministry spokesman in Berlin, who could not be reached.
The
self-declared mayor of Slovyansk, Vyachislav Ponomaryov, was quoted by
Russia’s Interfax News Agency as saying that rebels were trying to
verify the identities of the detainees, who had been on a bus that he
said was carrying ammunition.
Reached
by phone Friday night, his spokeswoman escalated the language, saying
the observers had been detained “on suspicion of being spies.”
She cut short the call before providing details.
Interim
Ukrainian leaders said operations to expel pro-Russian militants in
eastern cities would continue, even though military action so far had
done little more than harden local sentiments, prompt Russia to stage
military exercises on Ukraine’s border and raise concerns about Moscow’s
next move.
“Attempts
at military conflict in Ukraine will lead to a military conflict in
Europe,” Ukraine’s acting prime minister, Arseniy P. Yatsenyuk, told the
interim cabinet, according to remarks broadcast live and posted on the government’s website. “The world has not yet forgotten World War II, but Russia already wants to start World War III.”
The
acting head of Ukraine’s presidential administration, Serhiy
Pashynskyi, said the operation to dislodge what he called terrorists was
continuing in and around Slovyansk and would now focus on “totally
blockading” the city to prevent militants from getting reinforcements
and supplies.
He
also claimed that Russian military movements overnight at four
locations on the Russian side of the border had involved “400 tanks,
armored vehicles and rocket launchers.”
Near Slovyansk, a Ukrainian infantry unit patrolled in the farmland northwest of the city, a day after Ukraine sought to dislodge pro-Russian forces from checkpoints.
At
a checkpoint on the road just outside of Izyum, northwest of Slovyansk,
a combined force of soldiers and Interior Ministry troops were equipped
with rifles and machine guns, backed with armored vehicles and at least
one transport helicopter.
“We
have a good commander, and we believe him,” said Sergei, a major with
Interior Ministry troops who gave only his first name. “But this will
all be decided up above,” he added. “The politicians should resolve it.”
In
nearby Kramatorsk, a Ukrainian military transport helicopter and a
civilian An-2 aircraft were destroyed by mysterious fires on the
airfield that caused both aircraft to explode. The cause of the blazes
was unclear. Officials gave conflicting explanations, including a
helicopter being struck at takeoff by sniper fire, an incoming rocket
and a mechanical problem.
RUSSIA
Kiev
UKRAINE
Izyum
DETAIL
UKRAINE
MOLDOVA
ROMANIA
Slovyansk
Black
Sea
Kramatorsk
Luhansk
RUSSIA
Horlivka
Donetsk
25 Miles
The
airfield, however, was calm, with the pro-Russian and Ukrainian troops
separated by a short distance and displaying no signs of hostilities.
On
Facebook, Interior Minister Arsen Avakov said Ukraine’s military
operations in the east — known as “ATO,” meaning antiterrorist operation
— had not been suspended, despite local news reports to the contrary.
“The ATO goes on,” he said. “The terrorists should be on their guard round the clock. Civilians have nothing to fear.”
Residents of Slovyansk, the city the government said was under blockade, reacted bitterly.
“What,
they will allow no food in, no products?” asked Natalya Ivanyuk, a
retired teacher standing with pro-Russian men near a barricade guarded
by armed men. “It is like Leningrad. Is it the Second World War?”
“Blockade!”
she added, with disgust. She sharply criticized the interim government
in Kiev. “No one comes here and asks us what we want,” she said.
“Instead they send tanks.”
At
the edges of the city, rebels and work brigades alike could be seen
fortifying older positions and building new ones. At one partly erected
bunker, beside a canal, women worked beside men until almost sunset,
filling and hauling sandbags.
The heightened tensions and continued actions have buried already faint hopes that a deal reached April 17 in Geneva
by diplomats from the European Union, Russia, Ukraine and the United
States might calm a crisis, stirring fears of a wider conflict over
Ukraine, a nation of 46 million on a volatile fault line between Europe
and Russia.
The threat of intensified Western sanctions was underscored on Friday when the rating agency Standard & Poor’s downgraded its assessment of Russia.
“In
our view, the tense geopolitical situation between Russia and Ukraine
could see additional significant outflows of both foreign and domestic
capital from the Russian economy and hence further undermine already
weakening growth prospects,” the agency wrote.
In
his most detailed accusation of interference yet, Secretary of State
John Kerry said Thursday that American intelligence services had
concluded that Russia’s military intelligence services and “special
operators” were “playing an active role in destabilizing eastern Ukraine
with personnel, weapons, operational planning and coordination.”
On
Friday, Mr. Kerry’s Russian counterpart, Sergey V. Lavrov, hit back,
accusing Washington of seeking only to further its interests in Ukraine.
“The
West wants to take control of Ukraine while exclusively putting its
geopolitical interests, not the interests of the Ukrainian people, at
the forefront,” he said at a conference of diplomats from former Soviet
republics. “This is not our method. We will not blackmail, we will not
threaten, we are all polite people.”
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