President Vladimir Putin on Thursday lamented the latest round of U.S. sanctions against Russia, saying they will stalemate bilateral relations and hurt not only Russian but also U.S. businesses.
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Russia's benchmark MICEX plummeted 2.6 per cent at the opening Thursday upon news of the sanctions while Russia's biggest oil company, Rosneft, was nearly 5 per cent down.
Putin's comments came hours after U.S. President Barack Obama announced broader sanctions against Russia, targeting two major energy firms including Rosneft, a pair of powerful financial institutions, eight weapons firms and four individuals. The increased U.S. economic pressure is designed to end the insurgency in eastern Ukraine that is widely believed to be backed by the Russian government.
The U.S. penalties, however, stopped short of the most stringent actions the West has threatened, which would fully cut off key sectors of Russia's oil-dependent economy. But officials said those steps were still on the table if Russia fails to abide by the West's demands to stop its support for the pro-Russia insurgents who have destabilized eastern Ukraine.
U.S., Russia relations 'driving into a corner'
The insurgents have been fighting government troops in eastern Ukraine for four months now in a conflict that the UN says has killed over 400 people and has displaced tens of thousands. The conflict took off shortly after Russia annexed the mostly Russian-speaking Ukrainian peninsula of Crimea.
In televised comments Thursday, Putin said the sanctions are "driving into a corner" relations between the two nations as well as the interests of American companies and "the long-term national interests of the U.S. government and people."
Putin warned Washington that the sanctions will backlash against American companies working in Russia.
The most noticeable companies on the list are Rosneft and Russia's largest independent gas producer, Novatek. Both are now barred from getting long-term loans from U.S. entities.
Moscow-based investment bank Sberbank-CIB said in a note to investors that Russian companies cannot replace long-term loans from the U.S. immediately.
"While Asian and Middle Eastern money can step in to fill the gap, we expect that this will take time," the note said, adding that borrowing will also cost more.
Strong oil ties
Rosneft has a multibillion-dollar deal with ExxonMobil, which among other things allowed Exxon to develop lucrative oil fields in Russia.
"We gave this American company the right to work on the shelf," Putin said in Brazil, referring to Exxon's potential exploration on the Russian Arctic shelf. "So, what, the United States does not want it to work there now?"
Russia's foreign ministry dismissed the sanctions "bullying" and signalled that it was ready to push back.
"We consider the new round of American sanctions against Russia as a primitive attempt to take vengeance for the fact that events in Ukraine are not playing out to the tune of the script of Washington," the agency said in a statement.
Putin made no mention of the additional sanctions levied Wednesday by the 28-nation European Union, which urged the European Investment Bank to sign no new financing agreements with Moscow and was suspending operations in Russia financed by the European Bank for Reconstruction and Development. European nations have much closer energy and other economic ties with Russia and have not imposed as tough sanctions as the United States.
EU giving in to U.S. 'bullying'
But the foreign ministry did lash out at the EU's new sanctions, accusing Europe of "giving in to the bullying of the U.S. administration."
Igor Sechin, Rosneft's CEO and a close confidante of Putin, dismissed the U.S. sanctions as "unfounded, subjective and unlawful," adding that his company "had no role in the events in Ukraine."
Sechin said their lawyers have to yet to explore how hurtful the sanctions could be but added that the company has enough money in reserves to refrain from taking out new loans for a while.
Rosneft posted $2.5 billion in net profit in the first quarter of the year and about $3.5 billion in free cash flow.
"This is the wrong way," Sechin said, referring to the sanctions, in comments carried by Interfax. "But I think God sees everything and will put things right."