EU firms try to limit Russian sanctions

Fear striking at the Kremlin could hurt deep economic ties

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BERLIN -- With the showdown over Ukraine escalating, and President Barack Obama warning Moscow of a tough new round of sanctions, Russia and its allies in the European private sector are conducting a separate campaign to ensure that they can maintain their deep and longstanding economic ties even if the Kremlin orders further military action.

European banks and businesses are far more exposed to the Russian economy than are their U.S. counterparts. Trade between the EU and Russia amounted to almost $370 billion in 2012, while U.S. trade with Russia was about $26 billion that year.

As a result, they have lobbied energetically to head off, or at least dilute, any sanctions -- making it hard for U.S. and European political leaders to come up with a package of measures with enough bite to influence Moscow's behavior in Ukraine. Since Russia's annexation of Crimea, energy companies, exporters, big users of Russian natural gas and investors with stakes in Russia have counseled caution.

"Neither in energy terms, nor politically, should we turn away from Russia," said Rainer Seele, chairman of Wintershall, a subsidiary of the large German-based chemical company BASF that is deeply entwined in Russia's oil and natural gas trade.

In a statement Friday, the White House said Mr. Obama had discussed Ukraine with German Chancellor Angela Merkel, British Prime Minister David Cameron, French President Francois Hollande and Italian Prime Minister Matteo Renzi. Mr. Obama said only that the leaders had "agreed to work closely together, and through the G7 and European Union, to coordinate additional steps to impose costs on Russia."

On Friday night, a senior Obama administration official said sanctions against more Russian individuals could be announced as early as Monday. Two Western officials said that the EU would impose sanctions against 15 Russians.

The phone discussion among the leaders came at the end of a week in which executives of the giant Russian gas company, Gazprom, stumped across the European capitals, rallying support from customers and suppliers against increased tensions and making the case that Russia and Europe were long-term economic partners who should not let temporary crises cut their ties. Gazprom is 50 percent owned by the Russian government.

Alexander Medvedev, the No. 2 at Gazprom, said his company had done everything possible to keep gas flowing to both Ukraine and Europe, but the time of a financial reckoning was near, alluding to the $18.5 billion he said Ukraine owed. How, he asked, can a publicly traded company such as Gazprom keep contractual promises and make needed investments with such a cash shortfall from a slippery customer? Perhaps, he suggested, Ukraine's Western friends would like to help meet these bills.

About a quarter of the EU's gas supplies originate in Russia. More than half of Russia's exports go to the European Union, and 45 percent of its imports come from the EU, according to European statistics.

The pace at which the Ukraine crisis is changing the economics and geopolitics of Europe became clear again Friday, when Ms. Merkel endorsed a suggestion from Poland's Prime Minister Donald Tusk for a common energy policy for the 28-nation EU. Ms. Merkel stressed her agreement in principle, while Mr. Tusk noted that "the devil is in the details."

But even the general embrace of the idea by Germany suggests that EU nations might be prepared to pull together with the kind of unified response that Russia and Russian businesses fear could lead to Moscow's isolation.

No European industry has been as open in its support of Russia as the energy industry. Executives have publicly voiced skepticism about the effectiveness of sanctions, lobbied behind the scenes to head them off and traveled to Russia -- on at least one occasion to pose with Russian President Vladimir Putin. And the Russians, while publicly playing down the effects of sanctions, have been trying to exert influence in Brussels and elsewhere, lobbyists said.

Before the call between the European leaders and Mr. Obama, Ms. Merkel called Mr. Putin in what appeared to be a last warning to fulfill the accord reached in Geneva last week to reduce tensions in Ukraine. Minutes later, a Kremlin statement put a different spin on the call, saying both Mr. Putin and Ms. Merkel had called for three-party talks on Russian gas supplies to Europe through Ukraine.


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