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US, Europe slap toughest sanctions yet on Russia

WASHINGTON — President Barack Obama and European leaders on Tuesday slapped their toughest sanctions yet on Russia’s energy, arms and finance sectors to protests Russian involvement in Ukraine. But the measures stopped short of steps that might inflict damage on Western economies.

Among the entities targeted are Bank of Moscow and two other state-owned banks, as well as defense companies, including United Shipbuilding Corp. The European Union plan would prohibit new arms imports and exports and would halt the export of sensitive technology to Russian military users. But the plan would allow France to go ahead with a $1.7 billion sale of two amphibious assault ships.

Obama welcomed the European moves and said he hoped the latest round of measures will persuade Russian President Vladimir Putin to reconsider his country’s arming of separatists in Ukraine and to convince the pro-Russia forces to stop interfering with the investigation into the downing of a Malaysian Airlines passenger jet over rebel-held territory.

“Russia is once again isolating itself from the international community, setting back decades of genuine progress,” Obama said in announcing the latest round of sanctions from the White House lawn. “It does not have to be this way. This is a choice that Russia — and President Putin, in particular — has made.”

European countries that rely on imported Russian oil and natural gas for their energy needs had been reluctant to impose more than symbolic sanctions against Russia. But widespread outrage over the downing of Flight 17 moved them to impose what Obama called the “most significant and wide-ranging sanctions” to date.

The European sanctions are “surprisingly tough,” said Anders Aslund, a Russia expert for the Peterson Institute for International Economics, a free-market think tank. He said the European sanctions go further than the U.S. sanctions with regard to state banks and oil and gas exploration technology.

Neither the United States nor Europe has targeted Russia’s ability to sell its oil and natural gas, he noted, adding that there is still room for additional sanctions.

“What has not been done as of yet is to take Russia out of the international payment system,” he said. “Russia is so much more dependent on the West than the West is on Russia.”

On the energy front, the sanctions skirt existing joint ventures between Russian oil giants and international companies such as ExxonMobil and BP. Hitting these could have triggered oil price increases globally.

A ban on oil and natural gas field technology was limited to sophisticated equipment needed to extract hydrocarbons from shale-rock deposits, beneath deep ocean waters or from inside the Arctic Circle.

The idea, said a senior White House official who briefed reporters under a White House-imposed condition of anonymity, was to make it harder for Russia to conduct future-generation oil exploration and production.

The American Petroleum Institute, the trade association for the U.S. oil and gas industry, said the goal of sanctions could be reached through a different channel: flooding the market with American oil and gas, reducing the demand for Russia’s most important export.

An ExxonMobil spokesman said the company was assessing the sanctions.

German Chancellor Angela Merkel — whose government had been seen as waffling on tougher restrictions — was pointed Tuesday as she declared the new sanctions “unavoidable.”

The Russian government, she said, needs to decide “whether they want to embark on a path of de-escalation and cooperation.”

The sanctions, agreed upon by representatives of the 28 member states of the European Union, still have to be accepted by the countries’ national governments, but they are not expected to balk at the agreement.

EU officials debated the sanctions list for seven hours Tuesday, with France insisting that the ban on arms deals should refer to future deals and not the country’s ongoing sale of two Mistral-class warships to Russia — which the U.S. has condemned.

The weapons trade embargo includes traditional arms and “an export ban for dual-use goods for military end users.” There are thought to be as much as $5.6 billion worth of dual-use technologies traded with Russia.

In response to a reporter’s question of whether the hostilities mark a “new cold war,” Obama said they do not.

“What it is is a very specific issue related to Russia’s unwillingness to recognize that Ukraine can chart its own path,” he said.

Obama said the latest sanctions will “have a greater impact on the Russian economy than we’ve seen so far,” because they were coordinated between the U.S. and the EU. He said foreign investors were increasingly avoiding Russia and that projections for its economic growth “are down to near zero.”

But he acknowledged that even tougher sanctions “can’t in the end make President Putin see more clearly.”

“Ultimately that’s something that President Putin has to do on his own,” Obama said. “But what we can do is make sure that we’ve increased the costs for actions that I think are not only destructive to Ukraine but ultimately are going to be destructive to Russia, as well.”

Treasury Secretary Jack Lew said the U.S. was prepared to go further “if Russia does not take steps to resolve this crisis.”

With the sanctioning of the three additional banks — Bank of Moscow, its parent VTB Bank and Russian Agriculture Bank — the United States has now targeted five of the top state-owned banks.

Senior White House officials were careful to note the administration was not seeking to hurt depositors, but rather the ability of state banks to sell their bonds, company stock or obtain new loans for periods longer than 90 days.

“Basically, they’re out of business in the long-term debt markets because all of that is supplied in the euro and the dollar,” said one official who briefed reporters under a White House-imposed condition of anonymity.

On its English-language web site, Bank of Moscow calls itself “one of the leading commercial banks in Russia.” It boasts that “all your dreams will come true with a Bank of Moscow cash loan.”

Its financial statement provides a glimpse of how the U.S. and Europe hope to pressure Russia. The bank reported it’s the authorized bond dealer for the city of Moscow, that city’s financial agent and provides financing for regional and municipal governments.

Goldman Sachs purchased almost 3.9 percent of the bank in 2010 but sold it a year later.

The U.S. also will suspend all Export-Import Bank financing for deals in Russia, a move championed by House Financial Services Committee Chairman Jeb Hensarling, R-Texas, who called it “the right decision.”

Republicans have called for providing lethal military aid to Ukraine, but Obama called for resolving the crisis diplomatically, noting the Ukrainians are better armed than the separatists.

Ukraine’s new defense minister, Valeriy Heletey, renewed his government’s pleas for weapons from the United States in a call Monday with Defense Secretary Chuck Hagel.

Pentagon spokesman Rear Adm. John Kirby said the Defense Department is weighing the request and that night-vision goggles are on their way to Ukrainian forces, following the provision of other nonlethal materials including thermal-imaging equipment, Kevlar helmets, radios and robots that can defuse and dispose of bombs.

Clark and Hall reported from Washington, Schofield from Berlin. John Morwitz and James Rosen contributed from Washington.

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