Russia’s largest banks, oil producers and defence companies will be cut off from international finance and technology under sweeping new economic sanctions announced by the US and Europe that substantially escalate western political pressure over Ukraine.
In coordinated moves that may unnerve already jittery financial markets, the US Treasury and European Union announced on Friday that Russia’s largest bank, Sberbank, would be barred from accessing their capital markets for any long-term funding, including all borrowing over 30 days.
Existing 90-day lending bans affecting six other large Russian banks will also be tightened to 30-days, something US officials claim will sharply increasing their borrowing costs and deny access to important dollar-denominated funding sources.
Even more draconian measures were imposed on the Russian energy industry, where the US and Europe are attempting to shut down important new exploration projects in Siberia and the Arctic by barring foreign oil companies from providing any equipment, technology or assistance to deepwater, offshore, or shale projects.
The bans will prevent previously active companies such as Exxon and Shell from dealing with five of the largest Russian oil producers and pipeline operators: Gazprom, Gazprom Neft, LukOil, Surgutneftegas, and Rosneft.
The surprisingly far-reaching measures came despite tentative signs of diplomatic progress over Ukraine following a fragile ceasefire agreement.
One senior administration official in Washington claimed the measures were in response to recent incursions by Russian troops and were “about restoring respect for international law and state sovereignty”.
Another US official told reporters in Washington that the bans would would only be reversed if Moscow agreed to 12 measures set out in the so-called Minsk agreement, including withdrawing all its troops and equipment from Ukraine.
“The United States, in close cooperation with the European Union, will impose ever-increasing sanctions that further Russia’s isolation from the global financial system unless Russia abandons its current path and genuinely works toward a negotiated diplomatic resolution to the crisis,” said the Treasury department’s under secretary for terrorism and financial intelligence, David Cohen in a separate statement.
The moves brought a dismissive response from Russia’s president Vladimir Putin, who has already retaliated to earlier sanctions by banning food imports from Europe and the US.
“The less time officials and business leaders spend overseas and the more time they spend dealing with current issues the better,” said Putin.
The measures are the latest in a series of ratcheting sanctions since Russia was first blamed for intervening in Crimea in March, which began with individual travel bans and asset seizures targeted at allies of Putin and have gradually extended to include the country’s largest companies and key industries.
The latest US and EU sanctions this week also target Russian’s defence contractors, and include travel bans on 24 new individuals.
The arms maker Kalashnikov and five state-owned defence technology firms which make weapons such as the Buk missile system – Dolgoprudny, Mytishchinski Mashinostroitelny Zavod, Kalinin Machine Plant, Almaz-Antey, and JSC NIIP - will have any assets abroad frozen. And similar bans on receiving debt financing over 30-days were placed on Rostec, a defence conglomerate.
“Russia’s economic and diplomatic isolation will continue to grow as long as its actions do not live up to its words,” said US Treasury secretary Jack Lew.
“Russia’s economy is already paying a heavy price for its unlawful behavior. Growth has fallen to near zero, inflation is well above target, and Russian financial markets continue to deteriorate. [If] Russia chooses to continue its violations of international law, the costs will continue to rise.”