10/08/2022

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Ukraine Fights Back as West Ramps Up Sanctions on Russia

(Bloomberg) — Ukraine’s president said his nation continued to resist on the second day of the Russian invasion as the U.S. and European Union stepped up economic penalties and fighting raged north of Kyiv.

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President Volodymyr Zelenskiy said Ukraine’s military had stopped Russia from achieving its objectives in the first day of the assault. As air-raid sirens screamed in cities across the country of 41 million and Ukraine reported “horrific” rocket strikes in the capital, the president said Moscow-led forces were attacking military and civilian targets to keep up the pressure.

“Russia will have to talk to us sooner or later, talk about how to end the fighting and stop this invasion,” Zelenskiy said in a morning address. “The sooner this conversation begins, the smaller the losses of Russia itself.”

Earlier, U.S. President Joe Biden imposed stiff sanctions on Moscow as Western nations warned that Kyiv could fall. As Russian tanks, troops and aircraft pushed closer to Kyiv, Biden promised to inflict a “severe cost on the Russian economy” that will hamper its ability to do business in foreign currencies.

The European Union also backed a broad sanctions package to limit Russia’s access to Europe’s financial sector and restricting key technologies. The aim, said French Finance Minister Bruno Le Maire, is “to financially isolate Russia.”

Still, Russian markets took the measures in their stride. The ruble gained about 0.6% to 84.70 against the dollar in onshore trading on Friday, pulling back from a record low the previous day. The MOEX stock index opened 21% higher in Moscow after Thursday’s 33% plunge.

French President Emmanuel Macron said he had a frank, direct and quick conversation with Vladimir Putin at Zelenskiy’s request. Macron said Zelenskiy, who hasn’t been able to reach the Russian leader, wanted him to ask Putin to stop the fighting and engage in diplomacy.

“It didn’t produce any effect so far as you can see, because the Russian president has chosen war,” Macron said. He is scheduled to join Biden and their NATO counterparts in a virtual summit on Friday.

The Russian military effectively eliminated Ukraine’s air defenses and rapidly advanced across the neighboring country, meaning Kyiv could quickly be overrun as well, a senior Western intelligence official said.

Zelenskiy said 137 soldiers have been killed so far, with more than 300 wounded, state-run Tass reported. Russia’s Defense Ministry on Thursday had said the strikes were targeting Ukrainian military infrastructure and didn’t pose a threat to the population.

“This is a dangerous moment for all of Europe,” Biden said in an address to the nation from the White House on Thursday, adding that the “next few weeks and months will be hard on the people of Ukraine.”

After weeks of warnings that an attack would bring about a “massive” economic response, Biden announced that the U.S. would sanction Sberbank — Russia’s largest lender — and four other financial institutions that represent an estimated $1 trillion in assets, as well as a broad swath of Russian elites and their family members. Treasury said the penalties target “nearly 80 percent of all banking assets in Russia.”

EU leaders also approved the outlines of a package targeting 70% of Russia’s banking system, with the final details to be finalized and formally adopted in an emergency meeting of foreign ministers scheduled for 3 p.m. Friday.

The penalties are aimed at restricting Russia’s access to international markets by targeting some companies and banks, imposing limits on deposits from Russians and barring them from investing in EU securities. The EU will also introduce export controls on dual-use and high-tech goods.

“These sanctions will increase Russia’s borrowing costs, raise inflation and gradually erode Russia’s industrial base,” European Commission President Ursula von der Leyen said. “It will have maximum impact on the Russian economy and the political elite.”

Ukraine’s armed forces said their units were engaging Russian armor in Ivankiv, 50 miles north of Kyiv, while the Kropyvnytskyi military base was under attack in south-central Ukraine and enemy helicopters were moving near Moldova’s separatist-held Transnistria, while Zelenskiy said Russian aircraft were attacking residential areas in the capital.

Biden said action was needed now because Putin “has much larger ambitions than Ukraine.” “He wants to reestablish the former Soviet Union,” Biden said. “His ambitions are completely contrary to the place where the rest of the world has arrived.”

Putin has received diplomatic support from China, which has criticized Western sanctions against Russia and said it understands Moscow’s “reasonable” security concerns. Still, the world’s second-largest economy has also called for the territorial integrity of nations to be respected, hinting at some degree of discomfort in Beijing with the offensive.

Even while the U.S. and allies including the U.K., Canada, Taiwan and Japan announced fresh sanctions, Biden made clear that they were not willing to sacrifice their own economies to inflict punishment on Putin. He said restrictions on currency clearing would include carve-outs for energy payments, a crucial source of revenue for Russia. Banning such sales would likely roil global energy markets and cause shortages in Europe.

To cushion the impact of the conflict and fresh sanctions on Americans, Biden said the U.S. will release additional barrels of oil from the U.S. Strategic Petroleum Reserve as conditions warrant.

“I will do everything in my power to limit the pain the American people are feeling at the gas pump,” Biden said. “This is critical to me.”

Tech Curbs

U.S. stocks pared losses while the dollar and yen jumped and the euro and commodity-linked currencies retreated. Stocks climbed in Asia on Friday, while crude oil rose and U.S. equity futures slipped.

The U.S. will also implement export controls designed to cut Russia off from semiconductors and other advanced technology crucial to the military, biotechnology, and aerospace industries. Rules allow the U.S. to restrict exports to Russia from anywhere in the world using American technology, including software.

Watch: Biden Says Putin Has ‘Larger Ambitions Than Ukraine’

In a decision that may prompt criticism on Capitol Hill, Biden said Russia will not be barred from the Swift international banking network because Europe opposed that action. But the sanctions imposed Thursday against major Russian banks should have a similar effect and limit Russia’s ability to do business in dollars, euros, and pounds, he said.

Dutch Prime Minister Mark Rutte said many EU leaders have called for Russia to lose access to Swift.

“More work needs to be done to assess what it means if Russia is cut off from Swift,” Rutte said. “That really has to be worked through to make sure that we assess all eventualities what will happen.”

(Updates with markets, French finance minister starting in fifth paragraph.)

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