Russia warns of grave consequences from new U.S. sanctions

After President Obama announced the toughest sanctions yet on Moscow, Russian President Vladi­mir Putin is warning the measures will “have a boomerang effect” against the United States. (Reuters)

— Russian policymakers warned Thursday of grave international financial consequences from a new, stronger round of U.S. sanctions, a sign that the measures may be inflicting pain not just on key individuals, but also on a broader swath of Russia’s economy.

Prime Minister Dmitry Medvedev called the sanctions “evil” and warned that Moscow plans to bolster spending on defense and security in response. Russia’s stock market dropped sharply Thursday after the U.S. decision a day earlier to target major Russian banks, energy companies and defense firms with tough restrictions on their finances.

“We may go back to the 1980s in our relations with the states that are declaring these sanctions,” Medvedev said at a meeting of cabinet ministers broadcast on Russian state television. “This is sad,” he said.

“We will also have to give more attention to our defense and security expenditures” in view of the sanctions, he said.

The measures come at a critical juncture in negotiations with Iran over its nuclear program — talks in which Russia’s cooperation has been vital for the United States to achieve its aim of restricting Iran’s ability to build a nuclear weapon.

The Russian Foreign Ministry warned Thursday of unspecified consequences for joint efforts on issues that range far beyond the Ukraine conflict, raising concerns that negotiations with Iran could be affected.Russian Foreign Minister Sergei Lavrov skipped Iran talks this weekend in Vienna, dashing hopes that a deal would be reached by Sunday.

The sanctions are “a primitive attempt to avenge events in Ukraine that are not developing according to Washington’s script,” the Russian Foreign Ministry said in a statement. “A serious loser will be the business community of the U.S.A., which will have to pay the White House’s bill.”

“Such behavior of the Obama administration also inevitably affects the possibilities of our cooperation in many other areas,” the ministry said. “Blackmail will not be tolerated. We reserve the right to retaliate.”

Previous rounds of sanctions had targeted individuals close to the Kremlin in an attempt to influence the escalating separatist conflict in Ukraine, which Russia is accused of fueling with weaponry and support. Until now, the effect of sanctions on ordinary Russians had been relatively diffuse. But the new restrictions on long-term borrowing by two major banks and two of Russia’s largest energy companies could fuel a broader slowdown in Russia’s economy.

Russia’s benchmark MICEX index fell 2.4 percent Thursday, and the ruble dropped 0.9 percent against the dollar.

“Of course these sanctions will cause damage,” said Andrei Kostin, the head of VTB bank, Russia’s second largest, which was not on Wednesday’s sanctions list, the ITAR-TASS news agency reported. “The sanctions that are applied today mean a blow to the largest Russian companies, leaders in their industries, no matter whether it’s the energy or the banking sector.”

Kostin added, “If we do not take certain steps to stop these one-sided actions, we will become witnesses to really destructive consequences for the world financial system.”

The measures announced Wednesday targeted financing of greater than 90 days for two Russian banks — Gazprombank and state-owned Vnesheconombank, or VEB, which handles a significant portion of Russian government transactions such as pension payments. The measures also prohibited U.S. institutions from lending for more than 90-day periods to Novatek, Russia’s second-largest natural gas producer, and Rosneft, the largest oil company.

Rosneft chief executive Igor Sechin said late Wednesday that the biggest losers would be the international companies that are his partners in major ventures in Russia. Exxon Mobil is involved in a joint exploration project in the Arctic, and BP owns a major stake in Rosneft.

“Rosneft is a budget-forming company for Russia,” Sechin told journalists in Brasilia, where he was traveling with Russian President Vladimir Putin, ITAR-TASS reported. “Therefore, Russia’s sovereign and independent policy, and the company itself, is a target of these sanctions.”

Although the measures did not altogether ban U.S. firms from doing business with the target companies, the threat of a further escalation in sanctions would probably freeze any new cooperation, analysts said.

“This is painful damage for the Russian economy,” said Evgeny Gontmakher, a former economic adviser to Medvedev. “What will be next, nobody knows, and Western businesses of course now will be very careful about common projects with these companies.

“Maybe this is the most painful, more than the sanctions themselves,” he said.

The measures froze the U.S. assets of eight Russian defense firms, including the Kalashnikov gun manufacturer, and prohibited U.S. persons or anyone in the United States from dealing with them. Additional sanctions were applied to political entities and individuals in separatist regions of Ukraine and to top Putin aides.

Although the strike against the defense firms hit a less central area of Russia’s economy than the banks and energy companies, it will make life difficult for a key Putin constituency, one analyst said.

“Putin’s electorate is located directly in the military industry. So indirectly, all these sanctions will lower the level of life of all of these people,” said Alexander Golts, a defense expert and journalist. “The sanctions will cause a lot of difficulties for them.”

The conflict in Ukraine, meanwhile, showed no sign of abating Thursday, with a Ukrainian security official charging that a Russian fighter jet had shot down a Ukrainian Su-25 close-air-support jet in the east of the country.

Ukraine offered no evidence to back up the assertion, the most serious charge of direct Russian military intervention that it has leveled so far. A spokesman for Ukraine’s Analytic Center of the National Security and Defense Council, Andriy Lysenko, said Thursday that the pilot ejected after the Wednesday evening attack and safely reached friendly soil. A Russian Defense Ministry official denied the accusation, the Interfax news service reported.

Lysenko also said that Russia has fired Grad rockets into Ukrainian territory, and he offered a blurry YouTube video as proof. Russia also denied that allegation.

The commander of NATO forces in Europe, Air Force Gen. Philip Breedlove, said Thursday on Twitter on that he was “deeply concerned by this latest video that appears to show Russia engaging in military action against Ukraine.”

Michael Birnbaum is The Post’s Moscow bureau chief. He previously served as the Berlin correspondent and an education reporter.
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