The sale of two French Mistral class warships to Russia is making waves on both sides of the Atlantic.
When the French government signed a $1.6 billion contract in 2010 to sell Russia the two amphibious assault ships, no one envisaged that Russia would annex Ukraine’s Crimean peninsula and threaten a deeper military invasion of the nation.
U.S. officials, however, have warned about the sale for years.
The New York Times reported that former U.S. Defense Secretary Robert Gates noted in February 2010 that the sale “would send the wrong message to Russia and to our allies in Central and East Europe.”
The ships put dangerous weapons into the hands of an increasingly militaristic and expansionist Russia under President Vladimir Putin, who sounds determined to reclaim former Soviet lands. The ships pose a grave danger especially to Russia’s neighbors, especially in the Black Sea.
U.S. Senator Mark Warner, the Virginia Democrat who serves on the Senate Intelligence Committee, noted in a letter to U.S. President Barack Obama that each of the ships would be able to carry 16 helicopters, four landing craft, 60 armored vehicles, 13 tanks and up to 700 soldiers, according to The New York Times.
Following the Russian invasion of the Georgian provinces of South Ossetia and Abkhazia in 2008, Russian navy chief Vladimir Vysotsky said that Russia could have completed the operation in “40 minutes, instead of 26 hours” if it had ships like the Mistral.
Speaking to National Public Radio, Georgia’s Ambassador to France Ecaterine Siradze-Delaunay said countries have a “moral responsibility” not to assist countries that occupy parts of other nations.
When asked whether the U.S. and France are on the same page in an interview with CNN on May 12, French Foreign Minister Laurent Fabius responded, “I think so, provided that everybody makes the same sacrifices.”
The Mistral controversy is just one part of the sanctions debate against Russia.
So far, the U.S. and the European Union have imposed relatively mild sanctions that target individuals and a few companies. There is fierce resistance among Western companies about imposing sectoral sanctions against Russian banking, energy and other interests.
But such collective action and sacrifice are required for sanctions to be effective against Russia, whose economy is slipping into recession.
In a May 7 op-ed for the Financial Times, Markus Kerber, the director-general of the Federation of German Industries argued that it is German industry’s “responsibility to try to help end” the crisis in Ukraine, even if that cuts into corporate profits.
Kerber’s opinion comes as executives from Siemens, Adidas, Volkswagen, and other major German corporations have expressed their opposition to more severe economic sanctions on Russian corporations. They are touting reports that deeper sanctions could cut German economic growth by 0.9 percent this year and 0.3 percent next year.
Because the EU trades much more with Russia than the U.S., it has more influence – and stands to gain and lose more, also. U.S.-Russia bilateral trade totaled only $38 billion in 2013, whereas EU-Russia bilateral trade was $461 billion.
Fabius, the French foreign minister, emphasized that sanctions should not cripple the European economy: “It is not sanctions against Europe, but Russia. Let’s not forget that.”
Yet Kerber conceded that “economic sanctions may be the one way to make Russia feel the strength of Western determination.”
Skirting St. Petersburg
Though the U.S. has been keen to isolate Russia, some American companies have circumvented sanctions and are continuing to do business with blacklisted Russians.
Since 1997, the St. Petersburg International Economic Forum, scheduled for May 22-24 this year, has brought global business leaders together to promote economic growth.
Because American sanctions prohibit U.S. citizens from conducting business with sanctioned Russian officials, many top executives, including those at Morgan Stanley, IHS, and Goldman Sachs, have decided to skip the forum this year. The decisions came after top White House officials pressured American CEOs not to participate in the Putin-sponsored forum.
However, since U.S. sanctions affect only U.S. citizens and not companies, CEOs can still send representatives.
A spokesperson from Goldman Sachs told the Kyiv Post that it was “highly unlikely that [Goldman Sachs CEO Lloyd] Blankfein would attend the St. Petersburg Forum,” but that it was likely that someone from their Moscow office would attend.
Mark Weinberger, the CEO of Ernst & Young and an American citizen, has also been removed from the list of forum participants, according to a statement released by the company. He has been replaced an executive from South Africa.
International Paper CEO John Faraci has decided not to attend the conference, although a spokesperson from the company told the Kyiv Post that International Paper will be represented by “high level executives.”
Caterpillar spokesperson Rachel Potts said that the company plans to send a representative to the event, but declined to say whether President Donald James Umpleby III, whose name is on the list of participants, will attend.
Although some American corporations have skirted the sanctions, others may profit from them. SpaceX, which specializes in private space flight, is one such corporation.
The company has objected to the federal government awarding a single-source contract to United Launch Alliance for military-satellite launches. United Launch Alliance is a joint venture between Boeing and Lockheed Martin that uses rocket engines produced by a Russian company connected to Russian Deputy Prime Minister Dmitry Rogozin, who was added to the American list of sanctioned officials following the Russian annexation of Crimea in March.
A federal judge issued then lifted an injunction that prevents United Launch Alliance from working with NPO Energomash, the company with which Rogozin is affiliated. However, if the Treasury and State Department make an “affirmative determination” about Rogozin’s relationship with NPO Energomash, another injunction could be issued.
Rogozin later threatened to prevent the export of Russian engines for use in American military launches. If Rogozin follows through on this threat, United Launch Alliance would be forced to find a new supplier and SpaceX would be poised to step in.
On May 12, the EU lengthened its list of sanctioned individuals connected to the crisis in Ukraine, adding 13 Russians and Ukrainians, including Russian President Vladimir Putin’s first deputy chief of staff Vyacheslav Volodin. The sanctioned individuals will face travel bans and asset freezes.
The sanctions, which were levied because of “the absence of any steps towards de-escalation” include Crimean gas company Chornomornaftogaz and Feodosia, a Crimean oil supply company, both of which were owned by the Ukrainian government before being taken over by Crimean authorities since Russia annexed the peninsula in March. Chornomornaftogaz’s and Feodosia’s assets in the EU will be frozen as a result of the sanctions.
Though the EU sanctioned more people and firms, it would’ve been further expanded if not for interference from European oil and gas executives. According to Russian business newspaper Vedomosti, top European energy officials worked hard to prevent Alexey Miller, the head of Russian state-owned energy giant Gazprom, from being added to the list.
More sanctions may be on the way, however. Western officials have signaled that Russian interference in Ukraine’s May 25 presidential elections will trigger deeper sanctions.
German Foreign Minister Frank-Walter Steinmeier said on May 13 that the EU has “to be prepared for what to do if someone prevents the elections on May 25…If that is going to happen … then we have to think about further sanctions.”
Kyiv Post staff writer Isaac Webb can be reached at [email protected] and on Twitter at @IsaacDWebb
