EU to target Russian firms with sanctions, block loans

Herman Van Rompuy, President of the European Council, arrives at the press conference in Brussels, 16 July 2014 [Photo: The Council of the European Union]

Herman Van Rompuy, President of the European Council. Brussels, 16 July. [The Council of the European Union]

European Union leaders agreed on Wednesday (16 July) to sanction Russian companies that help destabilise Ukraine and to block new loans to Russia through two multilateral lenders.

The decision is a significant ratcheting-up of European pressure on Russia, although it falls short of the hard-hitting economic measures against Russia for which the United States and hawks in the EU were pushing.

Simultaneously, US President Barack Obama announced the most wide-ranging sanctions yet on the Russian economy, targeting key institutions including Gazprombank and Rosneft Oil Co, as well as other energy and defense companies.

German Chancellor Angela Merkel, arriving for the summit, said the EU leaders would talk about new sanctions “because we believe that the Russian contribution to peace in Ukraine is not yet sufficient”.

British Prime Minister David Cameron said the situation in Ukraine was unacceptable. “The territorial integrity of that country is not being properly respected by Russia and we need to send a very clear message with clear actions,” he said.

The EU leaders said that pro-Russian separatists had failed to take all the steps the EU had demanded to defuse the situation in eastern Ukraine.

As a result, they agreed to expand EU sanctions “with a view to targeting entities, including from the Russian Federation, that are materially or financially supporting actions undermining or threatening Ukraine’s sovereignty”, they said in a statement issued during the summit in Brussels.

By the end of July, the EU will draw up a first list of companies and people to be hit with asset freezes under the new criteria.

Asked if Russian energy companies like Gazprom or Rosneft could be targeted for sanctions, an EU official said, “This is a significant broadening of the criteria, which enables a much broader list than we have yet seen, but I cannot speculate what kind of additional entities would be added.”

Other actions eyed

The EU will also look into the possibility of targeting with sanctions companies and people that support Russian decision-makers responsible for annexing Ukraine’s Crimea region or destabilising eastern Ukraine.

EU leaders also decided to ask the EU’s bank, the European Investment Bank (EIB), to suspend new lending for Russia and to seek the suspension of new lending to Russia by the European Bank for Reconstruction and Development (EBRD).

Russia has traditionally been the biggest recipient of the London-based EBRD’s funds – it lent €1.8 billion there last year. The EIB pledged to lend more than €1 billion to Russia last year.

Russia is one of 64 countries that are shareholders of the EBRD but, if it wins the support of other pro-Western countries, the EU should be able to block loans for new Russian projects.

In addition, the leaders asked the EU’s executive Commission to look into suspending some of the cooperation programmes that are set to benefit Russia to the tune of around €450 million between now and 2020.

The EU will also draw up proposals for further measures to restrict investment in Crimea, whose annexation by Russia is not recognised by the EU. The leaders said they expected international financial institutions to refuse to finance any project that recognises the annexation of Crimea.

In a further move, EU leaders agreed to remove restrictions they had placed in February on the export of military equipment to Ukraine. Until now, the EU has imposed measures targeting 72 people in Russia and Ukraine with asset freezes and travel bans, as well as two energy companies in Crimea.

US Pressure

The 28-nation EU has been under strong pressure from the United States and Ukraine to take a harder line against Russia but some EU governments are wary of potential retaliation from Russia, the bloc’s biggest energy supplier, if they imposed trade sanctions.

Lithuanian President Dalia Grybauskaite said on arrival at the summit that the EU was “still far away” from a decision to impose sanctions on sectors of the Russian economy, or an arms or technology embargo.

Blocking loans to Russia through the EIB and EBRD marks a tightening of EU pressure but analysts said it would not have a severe economic impact on Russia.

“EBRD and EIB assistance is useful for Russia as it targets good projects that are aimed at modernising the economy and improving the investment climate,” said Tatiana Orlova, a strategist at RBS in London.

“But the scope of those projects is relatively modest and Russia is not dependent on these banks’ assistance,” she said. “Unless we see names of important companies, markets won’t really react too much.”

Both banks declined to comment.

The crisis in Ukraine erupted after its former President Viktor Yanukovich cancelled plans to sign trade and political pacts with the EU in November 2013 and instead sought closer ties with Russia, triggering protests that turned bloody and drove him from power.

Moscow annexed Crimea in March following a referendum staged after Russian forces established control over the Black Sea peninsula in the biggest East-West crisis since the Cold War.

Pro-Russian militants control buildings in more than ten towns in eastern Ukraine after launching their uprising on 6 April. On 11 May pro-Moscow rebels declared a resounding victory in a referendum in Donetsk and Luhansk, which the West called illegal and illegitimate.

Kyiv says Moscow has provoked the rebellion and allowed fighters and heavy weapons to cross the border with impunity. It has struggled to reassert control over the eastern frontier, recapturing border positions from rebels.

The fighting has escalated sharply in recent days after Ukrainian President Petro Poroshenko ordered on 1 July an assault on separatists.

>> Read: Poroshenko orders assault on separatists

Since, Ukrainian forces pushed the rebels out of their most heavily fortified bastion, the town of Slaviansk.

European Council

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