U.S., EU Widen Sanctions on Russia

The U.S. joined the European Union in expanding sanctions to target Russian Arctic and shale-oil projects and further limit financing to Russian state-controlled companies, a move to put pressure on Moscow as Ukraine negotiates a long-term peace plan and closer ties to the E.U.

The energy sanctions announced Friday, widely expected in recent days, will prevent Western energy firms from providing technology and services -- other than financial services -- to five Russian energy majors' oil projects in the Arctic, deep offshore fields and shale, the U.S. Treasury Department said.

The energy sanctions could directly impact partnerships such as Exxon Mobil Corp.'s (XOM) pact with OAO Rosneft (ROSN.MZ), one of the five firms targeted, according to U.S. officials and legal experts. The two companies have been drilling in the Arctic Kara Sea, as well as exploring for oil in a Siberian shale-rock formation.

Exxon agreed to pay for the majority of exploration costs for the Arctic, estimated at more than $3.2 billion, in exchange for a 33% stake in the venture. The deal has given Exxon unique access to a swath of Russia's Arctic larger than Texas, which could hold billions of barrels worth of oil and natural gas.

An Exxon spokesman didn't immediately respond to a request for comment. The company has said it is assessing the sanctions and will comply with all laws.

Some legal experts said the new sanctions could jeopardize the contracts Western firms have in Russia.

"It's unclear whether U.S. companies can fulfill certain contractual obligations such as payments to their Russian counterparts," said Eric Lorber, a lawyer at Gibson, Dunn & Crutcher LLP who advises companies on how to comply with sanctions. "They may be faced with a particularly difficult choice," he said, "violating the terms of their contract" or being subject to enforcement actions by the U.S. He also noted that the government has given the companies an unusually short period of time to comply with the sanctions.

The U.S. and Europe added OAO Sberbank (SBER.MZ), by far Russia's biggest bank, to the list of financial institutions and companies that Western companies and individuals are barred from lending to beyond the short term. The length of financing that's allowed to the Russian firms was reduced to 30 days from 90 days under previous rounds of sanctions. In addition, several defense firms were put on the sanctions list, and the U.S. Treasury moved to restrict financing to Rostec, a sprawling defense and industrial conglomerate owned by the Russian state.

U.S. and E.U. officials emphasized that the sanctions are reversible and could be rolled back if the peace process is completed successfully.

"It is essential that Russia work with Ukraine and other international partners to find a lasting settlement to the conflict," U.S. Treasury Secretary Jacob Lew said in a statement. "If Russia does so, these new sanctions could be suspended. If instead Russia chooses to continue its violations of international law, the costs will continue to rise."

Russian President Vladimir Putin said that the sanctions threaten the peace process in Ukraine and that Moscow is considering retaliating against the sanctions, the Interfax news services reported.

Also Friday, Russian Economy Minister Alexei Ulyukayev warned Russia may introduce "protective measures" against a number of Ukrainian goods, Interfax reported. The warning comes after an earlier announcement by Ukrainian President Petro Poroshenko that Ukrainian and European parliaments would be signing Ukraine's association agreement with the European Union on Tuesday.

Write to William Mauldin at [e-mail] and Daniel Gilbert at [e-mail]

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