Putin says sanctions threaten U.S., EUu role in Russia energy

Russian President Vladimir Putin warned that further economic sanctions over the Ukraine crisis may lead Russia to reconsider participation by U.S. and European Union companies in energy and other key industries.

While his government has prepared measures to retaliate for penalties imposed by the U.S. and its allies, Putin told reporters in Minsk, Belarus, yesterday that he doesn't consider them necessary for now, though that may change.

If sanctions continue, “then of course we will have to consider who's working and how in the Russian Federation, in the key sectors of the Russian economy, including energy,” he said. “We really don't want to take these reciprocal steps.”

Putin's remarks added uncertainty for companies that have stakes in Russia's energy industry, including Royal Dutch Shell Plc and Exxon Mobil Corp., which is planning Arctic drilling in an alliance with Russian state-controlled OAO Rosneft.

The Russian leader spoke hours after the EU expanded penalties against people close to Putin and companies tied to them, following similar steps a day earlier by the U.S., which yesterday called separatist violence in Ukraine's east “terrorism, pure and simple.”

The EU and the U.S. say Russia hasn't lived up to an accord signed April 17 in Geneva intended to defuse the confrontation between the Ukrainian government and separatists supported by the authorities in Moscow. They've both warned that they'll levy penalties on entire Russian industries if Putin escalates by sending troops into Ukraine.

EU Move

The EU added Russian Deputy Premier Dmitry Kozak to a list of people facing travel bans and asset freezes along with others including pro-Russian separatist leaders, according to a statement yesterday in the EU's Official Journal. The U.S. on April 28 targeted seven people, including Kozak and Igor Sechin, head of Rosneft, and 17 companies linked to Putin allies, such as InvestCapitalBank.

Russian markets slid today after a two-day rally in the wake of the penalties. The Micex Index fell 0.2 percent to 1,302.79 at 11:04 a.m. in Moscow today, bringing its year-to- date loss to more than 13 percent. The ruble lost 0.1 percent to 41.8383 against its basket of euros and dollars. It's down more than 8 percent this year, the second-worst performer among 24 emerging-market currencies tracked by Bloomberg.

‘Territorial Integrity'

The EU said that the people on its list are “responsible for actions which undermine or threaten the territorial integrity, sovereignty and independence of Ukraine.” The latest names, which also include Valery Gerasimov, chief of the general staff of Russia's armed forces, and Igor Sergun, head of the main intelligence directorate, bring the number of people blacklisted to 70.

Kozak, 55, is overseeing the development of Crimea, the Black Sea peninsula that Russia annexed from Ukraine.

EU preparations for “stage three” measures that would affect broader sectors of the Russian economy are “very advanced,” Maja Kocijancic, spokeswoman for European foreign- affairs chief Catherine Ashton, said on April 28 in Brussels.

“The shift toward tier three would be in the event of a very, very serious escalation of the type that you might associate with direct military invasions,” Jean-Christophe Gray, spokesman for U.K. Premier David Cameron, said in London.

‘Steep Price'

The sanctions are “forcing Russia to pay a steep price” for its role stoking tensions in Ukraine, U.S. Secretary of State John Kerry said yesterday in Washington.

U.S. companies are prohibited from doing business with individuals and entities on the sanctions list, and all assets of those designated that are within U.S. jurisdiction must be frozen, according to the U.S. Treasury Department.

The U.S. and its allies blame Russia for instigating the conflict in Ukraine that led to Russia's annexation of Crimea and the seizure of government buildings in eastern Ukraine. The North Atlantic Treaty Organization says Putin has massed about 40,000 troops on Ukraine's border.

Separatists continued to seize more buildings in eastern Ukraine today. Some 20 gunmen in camouflage fatigues seized the city council building and the regional police headquarters in the city of Horlivka, news service Interfax reported today. That followed the storming of the regional administration building by hundreds of activists wielding sticks and waving Russian flags yesterday in the city of Luhansk, where the police chief quit over protesters' demands.

‘Covert Operation'

Russia is undertaking a “covert occupation” of the country's eastern regions, Foreign Minister Andriy Deshchytsia said in an interview with news service Interfax. He added that the Kiev-based government would handle the unrest on its own.

After international military observers were abducted by pro-Russian militants in the eastern town of Slovyansk last week, Russia's Foreign Ministry said yesterday in a statement that it's taking “practical steps” to secure their release.

The separatists said Ukrainian authorities hadn't contacted them about the hostages' release, the Donetsk militia commander, Igor Strelkov, told Russian state TV.

The U.S. condemned “the separatists' taking of hostages, both Ukrainians and international monitors, some of whom have been brutally beaten,” the U.S. Embassy in Kiev said in a statement yesterday. “This is terrorism, pure and simple.”

Kerry said “we see no evidence -- no evidence at all -- that Russia has actually pressured” separatists to release the international observers.

Most companies on the latest U.S. list are tied to Gennady Timchenko or brothers Arkady and Boris Rotenberg, who were placed on a sanctions list on March 20. They include the Volga Group, controlled by Timchenko, and InvestCapitalBank and SMP Bank, which are controlled by the Rotenbergs.

One of the most prominent individuals on the list is Sechin, 53, a Putin colleague at the St. Petersburg mayor's office before rising to become head of state-run Rosneft. Over the past decade he's built it into the world's largest publicly traded oil company by output and reserves.

Rosneft, in which British oil company BP Plc owns 20 percent, isn't being sanctioned.

The EU has been reluctant to impose broader sanctions because of the potential harm to its member states, which rely on Russia for energy imports. Germany, Europe's largest economy, had $89 billion in trade with Russia in 2012.

Chinese Foreign Ministry spokesman Qin Gang urged the U.S. to stop sanctions against companies and individuals today.

--With assistance from Henry Meyer, Scott Rose and Elena Mazneva in Moscow, Phil Mattingly in Manila, Philippines, Kasia Klimasinska, Indira A.R. Lakshmanan, Jonathan Allen and Roger Runningen in Washington, Joe Carroll and Anastasia Ustinova in Chicago, Leon Mangasarian in Berlin, Kitty Donaldson in London and Volodymyr Verbyany in Kiev.

To contact the reporters on this story: Olga Tanas in Moscow at otanasbloomberg.net; Jonathan Stearns in Brussels at jstearns2bloomberg.net; Terry Atlas in Washington at tatlasbloomberg.net To contact the editors responsible for this story: James M. Gomez at jagomezbloomberg.net; John Walcott at jwalcott9bloomberg.net; Balazs Penz at bpenzbloomberg.net Michael Winfrey