Sanction threat unnerves Russian billionaires

  • Article by: HENRY MEYER and IRINA REZNIK , Bloomberg News
  • Updated: July 21, 2014 - 9:16 PM

Business elite “is just in horror,” an analyst said.

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President Obama described escalating sanctions against Russia in response to the crisis in Ukraine.

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– Russia’s richest businessmen are increasingly frantic that President Vladimir Putin’s policies in Ukraine will lead to crippling sanctions but are too scared of reprisal to say so publicly, billionaires and analysts said.

If Putin doesn’t move to end the war in Ukraine in the wake of last week’s downing of a Malaysia Airlines jet in rebel-held territory, he risks becoming an international outcast like Belarus’ Aleksandr Lukashenko, whom the U.S. labeled Europe’s last dictator, one Russian billionaire said on condition of anonymity. What’s happening is bad for business and bad for Russia, he said.

“The economic and business elite is just in horror,” said Igor Bunin, who heads the Center for Political Technology in Moscow. Nobody will speak out because of the implicit threat of retribution, Bunin said on Sunday. “Any sign of rebellion and they’ll be brought to their knees.”

The downing of the Malaysian airliner, which killed 298 people, led to renewed threats of deeper penalties by the United States and the European Union, who’ve already sanctioned Russian individuals and companies deemed complicit in fueling the pro-Russian insurgency in Ukraine. Secretary of State John Kerry said on Sunday that the available evidence suggests Russia provided the missile used by the rebels to down the airliner. U.K. Defense Secretary Michael Fallon was cited by the Mail on Sunday newspaper of accusing Putin of “sponsored terrorism.”

While the E.U. has so far imposed less-punitive measures against Russia than the U.S. because of opposition from countries such as Italy and Austria, the U.K. and the Netherlands are leading the push for bolder action at a meeting of foreign ministers Tuesday. Most of the victims aboard the plane, 193, were Dutch; 10 were British.

The U.S. already has imposed penalties on state-run companies and members of Putin’s inner circle, including billionaires Gennady Timchenko and Arkady Rotenberg. The latest sanctions, announced a day before the Malaysia Airlines attack, barred OAO Novatek, a gas producer partly owned by Timchenko, from using U.S. debt markets for new financing with maturities longer than 90 days.

Novatek’s London shares fell 8 percent over two days, cutting its market value by almost $3 billion.

‘A pariah state’

“Russia risks becoming a pariah state if it does not behave properly,” U.K. Foreign Secretary Philip Hammond said on Sky News on Sunday. “We now need to use the sense of outrage that is clear to get a further round of sanctions-tightening against Russia.”

Additional U.S. measures may be imposed in the next few weeks, with industry-wide sanctions probable in September if investigators determine that the rebels carried out the attack, with Europe taking less wide-ranging steps because it has closer business ties with Russia, Eurasia Group, a research and advisory firm based in New York, said in a research note.

“The threat of sanctions against entire sectors of the economy is now very real and there are serious grounds for business to be afraid,” Mikhail Kasyanov, who served as Russia’s prime minister during Putin’s first term as president, from 2000 to 2004, said by phone from Jurmala, Latvia.

“If there will be sanctions against the entire financial sector, the [Russian] economy will collapse in six months.”

Andrey Kostin, head of state-run lender VTB Group, said last week that the sanctions already in place may harm Russia’s $2 trillion economy and turn Russia into an outcast of global capitalism.

Putin, who has repeatedly denied arming the separatists in Ukraine, won’t back down because he is determined to resist U.S. and European encroachment, according to Eurasia Group.

“He will still view Russian influence over east Ukraine and a Russian veto over Ukrainian NATO membership as vital Russian national interests,” Eurasia Group said. “Military aid to the rebels will continue.”

Putin, a 61-year-old former KGB colonel, is bolstered by a surge in his popularity to a near-record of 86 percent since he annexed the Black Sea peninsula of Crimea from Ukraine in March, according to Moscow’s independent Levada Center.

On the day of the the Malaysia Airlines crash, Putin blamed the government in Ukraine, saying the state over whose territory the craft was traveling is responsible.

His ally, Sergei Naryshkin, speaker of parliament’s lower house, said Ukrainian authorities are “criminally negligent” for letting the Amsterdam-Kuala Lumpur flight cross a war zone.

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  • European Commission President Jose Manuel Barroso addresses the media at the end of an EU summit at the European Council building in Brussels, early Thursday, July 17, 2014. European Union leaders ordered tougher sanctions against Russia early Thursday because of its actions in Ukraine, asking the European Investment Bank to sign no new financing agreements with Moscow. The leaders, meeting in Brussels, also agreed to act together to suspend financing of the new European Bank for Reconstruction and Development operations in Russia. (AP Photo/Yves Logghe)

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