The start of a new cold war.
http://online.wsj.com/news/articles/SB10001424052702303802104579452751446729822?mod=WSJ_hp_LEFTTopStories&mg=reno64-wsjSanctions on Russia Take First Bite
Banks, Ruble, Stocks Recoil; Putin Says No More Retaliation, but Other Kremlin Officials Talk Tough
MOSCOW—President Vladimir Putin formally made Crimea part of Russia on Friday, even as the Kremlin sent contradictory signals on its willingness to hold off on retaliating against the West for its latest sanctions over the annexation.
The actions came as the new punitive measures imposed by Washington, followed Friday by expanded European sanctions, began to have an impact across Russia and beyond.
Russian stocks were hit, electronic payments inside the country snarled and energy traders scrambled to assess whether they could still deal with a big Geneva-based trading firm.
Russian President Vladimir Putin prepares to sign documents on Friday that completed the process of absorbing Crimea into Russia, defying Western leaders who say the Black Sea peninsula remains part of Ukraine. Reuters
Still, there was little evidence of a public rush to boycott American or European goods and services.
Mr. Putin appeared relatively calm. He quipped that he would be opening an account at Bank Rossiya, the lone financial institution on the U.S. sanctions list issued Thursday.
He also recommended halting the escalation of tensions, a day after Russia issued a tit-for-tat travel ban on nine U.S. government officials in response to Washington's original blacklist from Monday.
"I think we need to refrain from taking any retaliatory countermeasures for now," Mr. Putin said. He also said Russia should remain in a North Atlantic Treaty Organization program to provide spare parts for Russian-built helicopters being used in Afghanistan.
Nevertheless, he later signed a decree formally making Crimea part of Russia and appointing a presidential envoy to the region, after Russia's upper house of parliament approved the annexation treaty.
His chief spokesman, Dmitry Peskov, also told the Interfax news agency that Russia plans to impose mirror-image sanctions on the U.S. That suggests Russia may target more U.S. officials and perhaps business figures or a bank.
A new round of U.S. sanctions against Russia over its plans to annex Crimea were laughed off by lawmakers in Russia as President Vladimir Putin saw his position strengthen in recent poll ratings reports WSJ's Greg White.
"We aren't looking for a confrontation, and we aren't the source of this sanctions exchange," Mr. Peskov said. "Each time we will respond with a mirror image, but we are still advocating a development of our cooperation and are interested in it."
Russia's foreign ministry later said it is planning a tough response to the U.S.'s latest moves.
Finance Minister Anton Siluanov said the sanctions have contributed to an "overall negative perception" of Russia's economy and may increase the country's borrowing costs.
Russia's main stock index, the MICEX, fell ahead of Crimea's March 16 vote to secede.
Russia's currency slumped at the beginning of its military intervention in Crimea, on March 3.
Bank Rossiya and SMP Bank—both controlled by confidantes of Mr. Putin who were sanctioned by the U.S.—said that Visa V +0.70% and MasterCard MA -3.09% had cut off their processing service Friday. Disruptions spread to other banks that function as subsidiaries or rely on them for to process Visa and MasterCard transactions.
Sanctions on Russia: Who's Who
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The latest sanctions on Russia target close friends and advisers to Putin, a bank, and more. See the full list.
U.S. banks that have relationships with Bank Rossiya, one of Russia's biggest, indicated they would abide by the U.S. sanctions. Those include Bank of New York Mellon Corp., J.P. Morgan Chase & Co. and a U.S. unit of Deutsche Bank AG.
Executives at the Geneva-based energy trader Gunvor Group, meanwhile, spent Friday reassuring customers and its bankers that U.S. sanctions against a co-founder wouldn't disrupt its trading operations. The U.S. Treasury said Mr. Putin was an investor in the firm, one of the world's largest independent, energy-trading outfits. The company said Mr. Putin isn't an investor.
Washington on Thursday also blacklisted Gennady Timchenko, who owned 43% of the firm. Hours later, Gunvor said Mr. Timchenko had already sold his share in the company to Gunvor's other co-founder, Chief Executive Torbjorn Tornqvist.
The sanctions came as a surprise, Mr. Tornqvist said in an interview, and triggered a crisis in the early hours of the morning. Executives reached out to traders, bankers and other counterparties during the day to reassure them, he said, and "now, we have U.S. banks saying it's business as usual."
There was less certainty on many trading floors. Gunvor conducts billions of dollars in energy contracts with other international traders and producers. A North Sea oil trader said early Friday that questions about Gunvor were "the elephant in the room." American and European companies will be looking very closely at their business with Gunvor, said another oil trader.
Some of the world's biggest, publicly traded energy companies deal with Gunvor regularly, and executives at some of them were studying the implications of the sanctions Friday, according to people familiar with the situation.
The U.S. Treasury extended its sanctions list on Thursday to members of Mr. Putin's inner circle and other high-ranking Russian officials as well as Bank Rossiya, which it said serves as a personal bank for elite Russian officials.
The European Union, whose financial and energy sectors depend on Russian business, refrained Friday from sanctioning businessmen in Mr. Putin's inner circle. The Europeans also face legal constraints that the U.S. doesn't.
The EU did add a dozen names to its sanctions list—10 Russians and two from Crimea, and ordered up plans for "targeted economic measures" if Russia continues to destabilize Ukraine.
The EU list included Dmitry Kiselyov, the Russian state news anchor who in a recent on-air appearance said Russia could turn the U.S. into "radioactive ash." He told Russia's RIA Novosti news agency, which he now oversees, that the inclusion of a journalist violates EU human rights norms and amounts to an "attack on freedom of speech."
The EU invited Ukraine's new government to its summit in Brussels, where they signed agreements designed to bring Ukraine's political system closer to Europe's.
Moscow, meanwhile, stepped up the pressure on the new Kiev government, which it considers to be illegitimate.
Prime Minister Dmitry Medvedev said Russia would cancel the 2010 rental agreement for its Crimean naval base at Sevastopol—home of Russia's Black Sea Fleet—as well as the significant discounts for natural gas supplied to Ukraine as part of the deal.
He said Kiev now owes Russia as much as $16 billion, including bond payments and gas deliveries.
The crisis in Crimea has ushered in a new era of East-West relations that many experts believe has rolled back more than 20 years of efforts to integrate Russia into what has been described as the Euro-Atlantic community.
"It is a fundamental turning point in Russian foreign policy," said Fyodor Lukyanov, chairman of a Kremlin foreign affairs advisory council.
He said the relationship with the West is no longer valuable enough for Russia to see it as a reason to refrain from asserting its vital interests.
Russia hit back against the United States this week by imposing sanctions on some members of congress, and the affected senators could not be more thrilled.
He also predicted that the U.S. sanctions, if anything, would speed Russia's foreign policy turn toward the East, where the Kremlin increasingly been courting China.
"The relationship with the West isn't the top priority anymore," Mr. Lukyanov said.
In the past, the Kremlin hasn't always responded to punitive measures by the U.S. symmetrically.
In 2012, when the U.S. passed the Magnitsky Act—which barred Russian officials connected to the 2009 death of a Russian lawyer from traveling to the U.S. or using American banks—Russia created its own list of U.S. officials it accused of human rights violations and banned them from Russia.
Russia also barred imports of U.S. meat containing a growth hormone commonly used in the U.S., and ended the adoption of Russian children by American families. Both moves were widely seen as retaliation for the U.S. law.
Such responses have raised worries among Americans with all sorts of interests in Russia.
Boeing Inc., for example, gets much of the titanium for its planes from Russia and has manufacturing plants in the country. It also has contracts to sell around 100 planes—valued at billions of dollars—to Russian airlines.
General Electric Co. GE +0.51% leases airplanes and sells medical equipment across Russia, where the government this week floated a ban on imported medical devices.
Both companies said they are monitoring the situation closely but declined to comment on possible impact to their business in Russia.
The chilly relations between Russia and the U.S. emanating from events in Ukraine could be about to complicate other foreign matters. WSJ's Jerry Seib says Iran, Syria and arms control all could be affected by the new tensions. Photo: Associated Press.
Russian troops guard a military base in Perevalnoye, near the Crimean capital of Simferopol. Russian President Vladimir Putin formally signed the papers Friday annexing the region, which had voted to secede from Ukraine. Reuters
Western executives have tried to reassure investors that they are managing their exposure to Russia. "We're trying to understand what kind of scenarios there could be," Peter Cedervall, president of rail-control solutions for Bombardier Inc., told analysts on a conference call Thursday.
The Canadian maker of planes and trains had targeted Russia for new investments in railroad systems in the wake of the Sochi Olympic Games.
Canada on Friday broadened its sanctions against Russia, adding 14 individuals and Bank Rossiya.
One additional risk for Westerners is the falling value of the Russian currency. That can hit the value of sales of goods paid for in rubles but converted back into a company's home currency. Mr. Cedervall said one option could be to "get paid offshore, not to see the currency, or the money passing Russian soil."
Other executives said there was uncertainty over what effect any fresh sanctions might have on exports and imports. Grain harvests just wrapped up in Russia and the Ukraine. "Now probably a lot of the noise is about being able to export in the Black Sea," said Greg Peterson, director of investor relations for agricultural equipment supplier AGCO Corp.
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