The Obama administration on Friday imposed new, punitive sanctions against Russia, taking aim at the nation’s largest bank and prohibiting U.S. technology exports for shale oil projects, deepwater exploration and drilling in Russia’s Arctic.
Also, in what appeared to be a major concession to Russia, the European Union and Ukraine said Friday that they would put off completion of a free trade deal until the beginning of 2016. The deal was an early catalyst for the Ukrainian crisis, provoking an uprising by protesters in Kiev after then-President Viktor Yanukovych rejected it in favor of a pact with Russia.
The E.U. has already granted reduced tariff status for a host of Ukrainian goods. The second half of the deal involved Ukraine cutting duties on imports coming from the E.U. and implementing a series of economic revisions.
The sanctions from the Treasury and Commerce Departments were taken in concert with the E.U., which unveiled parallel restrictions on Friday. The measures are tailored to turn up the pressure on Russian President Vladimir Putin to abide by the terms of a tenuous Sept. 5 cease-fire signed between Russian-backed separatists in Ukraine and the Kiev government.
“Given Russia’s direct military intervention and blatant efforts to destabilize Ukraine, we have deepened our sanctions against Russia today, in concert with our European allies,” Treasury Secretary Jack Lew said in a statement. “These steps underscore the continued resolve of the international community against Russia’s aggression.”
The Russian Foreign Ministry called the new sanctions a “hostile step,” according to Interfax.
The new measures add Russia’s largest bank, Sberbank, to the sanctions list and tighten earlier restrictions on debt financing for five others.
The measures may also force Exxon Mobil to shelve plans to explore the Russian Arctic; it is drilling its first exploratory well in the Kara Sea. The Treasury said that U.S. firms “have until September 26, 2014, to wind down applicable transactions with” five Russian energy companies, including Rosneft, Exxon Mobil’s partner in the Arctic.
“We are assessing the sanctions,” Exxon Mobil spokesman Alan T. Jeffers said. “We comply with all laws.”
The sanctions represent a major step for the E.U., whose members rely on imports from Russia for a third of their oil and natural gas consumption. On Friday, Poland’s largest oil and gas company, PGNiG, said that Gazprom had curtailed natural gas exports to Poland, supplying 20 percent to 45 percent less than PGNiG requested over the past week.
Gazprom denied the assertion. On Friday, Gazprom said profits fell as a result of increased operating expenses — half of them, it said, caused by Ukraine’s failure to pay in full for natural gas supplies. Poland, whose gas storage tanks are full, has been sending some gas to Ukraine through “reverse flow” pipelines.
The new sanctions are “being imposed in direct response to the actions Russia took in Ukraine over the last month,” an administration official said Friday. Those actions have included sending heavily armed Russian forces and lethal equipment into Ukraine, supporting pro-Russian rebels and firing over the Ukrainian border.
U.S. officials said the new sanctions could be rolled back if Russia abides by all 12 points of the cease-fire agreement, including withdrawing its troops and releasing Ukrainian hostages.
Ukrainian President Petro Poroshenko said Friday that the new sanctions reflect Western solidarity with his country. Poroshenko said his government exchanged dozens of prisoners in an overnight swap with pro-Russian separatists.
Poroshenko, who is trying to bolster the cease-fire while endorsing sanctions, repeated that there is “no military solution to the crisis.”
“Russia’s economic and diplomatic isolation will continue to grow as long as its actions do not live up to its words. Russia’s economy is already paying a heavy price for its unlawful behavior,” Lew said.
In addition to adding Sberbank, the Treasury Department’s new sanctions bar Western firms from buying debt lasting more than 30 days belonging to six major Russian banks, cutting them off from vital long-term financing. Earlier sanctions guidelines limited financing for Russian banks and energy giants to 90 days.
The actions shut the banks “out of the U.S. and European financing markets for everything other than very short-term debt,” a senior administration official said.
The sanctions have already hurt other Russian companies. Although Rosneft has received tens of billions of dollars of prepayments for oil from Chinese companies, Reuters reported in mid-August that Rosneft still asked the Russian national wealth fund to lend it $42 billion to weather financial sanctions.
Oil exploration in the Arctic, even if successful, will not produce oil for another decade, and Fadel Gheit, an oil analyst for Oppenheimer & Co., said the sanctions’ “bark is worse than its bite.” But Russia is one of the world’s top three oil producers, and about 60 percent of its exports come from oil and gas. So Russia is increasingly looking to tap its resources in shale and the forbidding Arctic offshore to maintain or boost its long-term output.
The new sanctions apply to production as well as exploration projects. Western companies have two weeks to wind down the exchange of goods, services and technology to five Russian energy companies: Gazprom, Gazprom Neft, Lukoil, Surgutneftegas and Rosneft.
The sanctions will not completely cut off work between these companies and the West. Rather, the goal is to make the deepwater and shale projects, which rely heavily on Western technology, hardware and expertise, more difficult to continue.
“It’s really the U.S. and European companies that have expertise for deepwater and shale,” a senior administration official said.
It still wasn’t completely clear how far-reaching the implementation of the sanctions would be. In earlier rounds, Exxon Mobil told analysts that sanctions would only apply to new energy projects, not existing ones. That is no longer clear. Exxon also produces oil and gas on Sakhalin Island in eastern Russia.
Royal Dutch Shell chief executive Ben van Beurden said last Friday that Shell “by and large it comes out unaffected” by sanctions, though a plan to drill shale oil wells in Siberia might be curtailed. Shell also produces oil and natural gas on Sakhalin Island.
“We are taking actions to ensure we comply with all applicable sanctions,” Shell spokesman Curtis Smith said Friday.
Lawyers for BP, which owns just under 20 percent of Rosneft, were also poring over sanctions guidelines, analysts said.
A senior administration official said U.S. companies “understand why we’re doing what we’re doing.”
The Treasury also designated and blocked assets of five Russian state-owned defense technology firms.
Anthony Faiola in Donetsk, Ukraine, and Daniela Deane in Rome contributed to this report.