Europe weighs Russia sanctions against economic pain


Workers tend to a pipeline at the PCK oil refinery in Schwedt, Germany. (Andreas Rentz/Getty Images)

— In the United States, Igor Ivanovich Sechin is persona non grata, banned from entry and his assets frozen because of Moscow’s meddling in Ukraine. But in this German industrial town, the czar of Russia’s energy sector is a pillar of the local economy.

Resting in the former East Germany, where residents of a certain age keep up their rusty Russian and a sweet-and-sour soup brought by the Soviets is still a staple on local menus, Schwedt lives and dies off Russian oil. Rosneft, the Russian state energy giant headed by Sechin, supplies a large portion of the crude that goes to the local refinery here — and partly owns the refinery itself.

At the plant, the biggest employer in town, 1,000-plus workers process 12 million tons of fuel a year, mostly from the oil that flows from Russia via the world’s longest pipeline. The gasoline they produce powers 90 percent of the cars in sprawling Berlin, 62 miles southwest. Nearly all of the planes that take off from Berlin Tegel Airport run on jet fuel refined here.

Jolted by the downing of Malaysia Airlines Flight 17, a long-reluctant European Union is now moving toward the sort of sanctions long advocated by Washington to punish Russia for its support of rebels in eastern Ukraine. But across the 28-nation bloc, the region’s leaders are grappling with a tough calculus: It will be difficult to seriously punish Russia’s economy without also damaging their own.

The United States said Monday it will implement additional sanctions this week and expects Europe’s leaders to do the same. The new measures would target the Russian defense, finance and energy sectors — moves that analysts say would hit Russian President Vladimir Putin where it hurts but could also rebound badly in Europe.

Sanctions on Russia may hurt E.U. players

European diplomats were expected to gather in Brussels on Tuesday to finalize the new measures amid questions over just how far they will be willing to go. Meanwhile, E.U. ambassadors on Monday agreed to add Putin “cronies” to a list of those banned from travel in Europe, with an announcement expected Wednesday. Sechin has so far been left off the E.U. sanctions lists. But any added pressure on Russia is viewed in towns such as this one with trepidation.

“Economic sanctions don’t work, and we depend on Russian oil here,” said Michael Czolbe, 54, a German truck driver who runs the plant’s gasoline down to Berlin. “Jobs depend on it. They could shut down Schwedt if they wanted to.”

Main benefactor

In a shrinking city desperate to retain its youngest and brightest, the refinery here is more than a workplace; it is the town’s main benefactor. The partnership that owns it paid for the facade restoration of the local theater. It sponsors Schwedt’s annual fantasy festival, in which the town’s amateur thespians don costumes and fight battles as sorcerers. The refinery puts on annual art symposiums for creative minds and helps keep the town fit through sporting events.

But it can all seem a little too fragile. Residents here remember the three days in 2007 when Russia, during a dispute with Belarus, halted crude shipments through the Friendship Pipeline. As Europe targets the Russian economy, many in the bargain stores at the shopping mall and the eerily quiet town center already fear for their livelihoods.

For major European powers, Russia means business, literally. Germany needs Russia’s gas to power homes and businesses. The bespoke-suited bankers of London’s financial district rely on Russian cash to keep their investment houses humming. In a port roughly four hours’ drive from Paris, hundreds of French workers have jobs because of a $1.7 billion deal to sell two Mistral warships to Moscow.

Russia is Europe’s third-largest trading partner, and Europe is Russia’s biggest. Last year, more than $400 billion worth of goods moved between the two, compared with just $38 billion in trade between Russia and the United States. The disparity makes Washington’s decision to slap sanctions on Moscow easier than the options being mulled in the E.U.’s administrative capital, Brussels. It also makes Europe’s choice more consequential.

“It’s all very well for the Americans to say, ‘Let’s do this.’ But they don’t border Russia, and they’re not engaged in lots of trade with Russia,” said Margot Light, a professor of international relations at the London School of Economics.“For sanctions to work, it’s going to take a lot of pain.”

That interdependence cuts both ways, giving Europe enormous leverage over Russia but also putting Europe at risk of hurting itself as it tries to put the squeeze on Putin. Southern Europe — including nations such as Italy that have shown stiff resistance to getting tougher on Russia — is particularly vulnerable as it emerges from the wreckage of a crippling debt crisis.

Tougher sanctions would “hit the Russian economy, but equally it will hit the E.U. economy,” said Nigel Kushner, chief executive of the London-based corporate law firm W Legal. “The only difference is that the Russians will get their goods from somewhere else. The E.U. companies will suffer because they can’t necessarily sell elsewhere.”

Fears in the City

Fears are particularly acute in Britain, where Russian money has long helped fuel London’s booming financial district — known collectively as the City. Well-heeled Russians have also helped fuel London’s blistering-hot real estate market, buying up luxury apartments and buildings where even the digital security systems are programmed in Russian.

Even as British Prime Minister David Cameron led the push to get tough on Russia, the British media swirled this week with stories noting that the wife of a former deputy minister in Putin’s government had recently won the right to play tennis with Cameron and London Mayor Boris Johnson — in exchange for a tidy $275,000 donation to their political base, the Conservative Party.

“There is an awful lot of Russian money here,” Light said. “If it leaves the City, it won’t come back.”

But the stance across the continent has substantially hardened in the wake of the downing of the Malaysia Airways jetliner. European leaders are drafting broader measures that could come into effect if Russia does not change course in Ukraine.

“The Europeans can get very quickly to where the Americans are if they need to do so,” said Mujtaba Rahman, Europe director for the Eurasia Group, a consulting firm.

Moves under consideration, E.U. officials say, could target the nearly $10 billion worth of bonds issued in Europe by Russian state-owned banks and financial institutions as well as impose an arms embargo and restrictions on dual-technology sales of equipment used in the energy industry.

It is that last part that has Schwedt so worried.

From the air, the PCK oil refinery — owned by an international consortium that Rosneft bought into in 2010 — looms like an iron castle over the town. In the aftermath of World War II, when 85 percent of Schwedt lay in rubble, the plant emerged as a saving grace, generating as many as 10,000 jobs during the height of the Soviet era.

Today, years after the fall of the Berlin Wall, the ties that bind this swath of Germany to Russia have not wholly dissipated. Residents still reminisce about receiving candy from the Soviet army. Several expressed admiration for Putin and called allegations of Russian complicity in the downing of the Malaysia Airlines jet a rush to judgment before the facts were known.

Here, Sechin — a Putin confidant — is a household name. Inside the office of one refinery supplier, a sepia cutout of the local news story heralding Sechin’s visit to the plant in 2012 was pinned to a wall. In town, loyalty to the plant is fierce. PCK declined to comment on the possible impact of E.U. sanctions, as did several local officials.

Why, many residents here said, should Germany make Russia its enemy? Citing the spat over U.S. spying between Washington and Berlin, Dieter Posselt, 62 and a former employee at the refinery, said: “German-Russian relations are just as good as German-U.S. relations these days. And what should we do? Start a war? No.”

Witte reported from London. Karla Adam in London, Stephanie Kirchner in Berlin and Karen DeYoung in Washington contributed to this report.

Anthony Faiola is The Post's Berlin bureau chief. Faiola joined the Post in 1994, since then reporting for the paper from six continents and serving as bureau chief in Tokyo, Buenos Aires, New York and London.
Griff Witte is The Post’s London bureau chief. He previously served as the paper’s deputy foreign editor and as the bureau chief in Kabul, Islamabad and Jerusalem.
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