(Adds Rice comment, Canada sanctions, Moscow excludes OSCE from
* Kremlin to respond to U.S. sanctions in kind
* Russian stocks plunge as investors fear wider sanctions
* Visa, MasterCard stop processing payments for Russian bank
* Europe looks to diversify from Russian gas, oil
* EU signs deal with Ukraine, pledges financial help
By Steve Gutterman and Adrian Croft
MOSCOW/BRUSSELS, March 21 President Vladimir
Putin signed laws completing Russia's annexation of Crimea on
Friday as investors took fright at a U.S. decision to slap
sanctions on his inner circle of money men and security
Putin promised to protect a bank partly owned by an old
ally, which Washington has blacklisted, and his spokesman said
Russia would respond in kind to the latest financial and visa
curbs after producing one blacklist of its own.
His allies laughed off the U.S. sanctions, but shares on the
Moscow stock exchange - which have lost $70 billion of their
value this month - fell sharply after President Barack Obama
also threatened to target major sectors of the economy if Russia
moved on areas of Ukraine beyond the Black Sea peninsula.
Obama's national security adviser said the world was
reassessing its relationship with Russia and Washington was
sceptical of Russian assurances that troop movements on the
Ukraine border were no more than military exercises.
The financial noose began tightening with Visa and
MasterCard stopping processing payments for a Russian bank owned
by two brothers on the U.S. blacklist. Finance Minister Anton
Siluanov said Russia might cancel its foreign borrowing for 2014
and raise less domestically if the cost of issuing debt
European Union leaders - who like Obama insist Crimea is
still part of Ukraine - imposed their own sanctions on 12
people, including Russian deputy prime minister Dmitry Rogozin
and two aides to Putin. Canada sanctioned 14 people.
Shaken by the worst East-West crisis since the Cold War, the
EU also pledged to cut its reliance on Russian energy and signed
a political deal with the pro-Western Ukrainians who took power
after Moscow-backed President Viktor Yanukovich's overthrow last
In a Kremlin ceremony shown live on state television, Putin
signed a law on ratification of a treaty making Crimea part of
Russia and another creating two new Russian administrative
districts: Crimea and the port city of Sevastopol, where Moscow
keeps part of its Black Sea fleet.
Thousands of Russians marked the annexation with fireworks
and celebrations in Simferopol, capital of Crimea where the
population is around 58 percent ethnic Russian.
"Many people wanted this, to go back, not to the USSR, but
to that big country of ours," said Anna Zevetseva, 32. "We are
waiting for things to improve and for investment from Russia."
Ukrainian and Tatar residents stayed behind closed doors.
Sergey, a 64-year-old Ukrainian businessman who did not want to
give his surname, saw no reason to celebrate. "An occupying
force is in my country and we have been annexed," he said.
A referendum last Sunday after Russian troops seized control
of Crimea overwhelmingly backed union with Russia but was
denounced by Washington and the European Union as a sham. It
opened the way for annexation within a week.
The OSCE European rights and security body finally agreed to
send monitors to Ukraine after a delay Western members blamed on
Russia, but Moscow said it would have no mandate in Crimea.
Obama's decision to target people who accompanied Putin's
rise from the mayor's office in St Petersburg in the 1990s to
the Russian presidency deepened the diplomatic confrontation.
Putin said Bank Rossiya, singled out by Washington as the
personal bank for senior Russian officials, had nothing to do
with events in Crimea.
The St Petersburg-based bank - which is chaired and partly
owned by Yuri Kovalchuk, an old associate of Putin's - mainly
serves clients in Russia's energy sector including businesses
owned by state-run gas producer Gazprom.
Putin, who says Crimea has exercised its right to
self-determination, promised to transfer his wages to Bank
Rossiya. "I personally don't have an account there, but I
certainly will open one on Monday," he told Russia's Security
Others on the U.S. blacklist include oil and commodities
trader Gennady Timchenko and the brothers Arkady and Boris
Rotenberg, who are linked to big contracts on gas pipelines and
the Sochi Olympics, as well as Putin's chief of staff and his
deputy, the head of military intelligence and a railways chief.
European leaders also agreed to accelerate their quest for
more secure energy supplies at talks on Friday.
The EU has made progress in diversifying since crises in
2006 and 2009, when rows over unpaid bills between Kiev and
Moscow led to the disruption of gas exports to western Europe.
But Russia still provides around a third of the
EU's oil and gas and 40 percent of the gas goes through Ukraine.
European Council President Herman Van Rompuy said member
states would help one another to maintain supplies if Moscow cut
them. "We are serious about reducing our energy dependency," he
told a news conference at the end of a summit in Brussels.
EU countries, which buy Russian gas individually, will also
look to negotiate supply deals jointly with Moscow to increase
their bargaining power. "It is clear we need to be moving
towards an energy union," said Van Rompuy.
German Chancellor Angela Merkel raised the possibility that
U.S. shale gas could eventually be an option for European
countries seeking to diversify. Obama is expected to address the
issue at a summit with EU leaders next Wednesday.
Foreign banks and companies now fear the secondary ripple
effects of the sanctions. In a worst-case scenario for them,
Washington would stop banks doing business with Russian clients,
similar to the sanctions that were imposed on Iran.
"What has been announced so far is really nothing. It's
purely cosmetic," said a French banker based in Moscow, adding
that the biggest risk was to transfers in U.S. dollars, crucial
for the energy export-dependent Russian economy.
Obama said on Thursday that Washington was also considering
sanctions against economic sectors including financial services,
oil and gas, metals and mining and the defence industry, if
Russia made military moves into eastern and southern Ukraine.
In Crimea itself, Ukrainian troops who have been surrounded
by Russian forces continued to leave their bases, powerless to
halt Moscow's takeover of the peninsula.
"The situation in Ukraine remains unstable and menacing,"
said German Foreign Minister Frank-Walter Steinmeier, urging the
OSCE observers to take up their work as quickly as possible.
EU SUPPORT FOR KIEV
European governments also took individual action against
Russia. Germany suspended approval of all defence-related
exports to Russia, ordering contractor Rheinmetall to
halt delivery of combat simulation gear, while France called off
military cooperation with Moscow.
In Brussels, the 28 EU leaders underlined their support for
Ukraine's new leadership, signing a political agreement with
interim Prime Minister Arseniy Yatseniuk.
They also promised financial aid for the government -
rejected as illegitimate by Moscow - as soon as Kiev reaches a
deal with the International Monetary Fund.
The IMF is to report next Tuesday on advanced talks with
Ukraine on a loan programme that would be linked to far-reaching
reforms of the shattered economy.
Three months of protests were set off by Yanukovich's
refusal to sign an association agreement with the EU, the
political part of which was signed on Friday.
Russia's MICEX stock index fell about 3 percent when
trade opened, although it recovered some of the losses later.
Promsvyazbank analyst Oleg Shagov said Obama had "opened a
Pandora's box full of sanctions", with future sanctions to be
"directed against whole sectors of the Russian economy".
Negative market sentiment was reinforced by warnings from
credit ratings agencies Fitch and S&P that they were changing
their outlooks on Russia to negative from stable because of the
possible impact of sanctions on Russia's economy and business
climate. Both agencies presently rate Russia BBB.
Prime Minister Dmitry Medvedev made clear that Russia would
step up financial pressure on Ukraine. He said the former Soviet
republic should repay Moscow $11 billion under a gas supply
contract that should be scrapped because it no longer applied.
(Additional reporting by Alexandar Vasovic in Simferopol, Luke
Baker, Justyna Pawlak, Jan Strupczewski, Barbara Lewis, Robin
Emmott and Martin Santa in Brussels, Oksana Kobzeva, Lidia
Kelly, Elizabeth Piper, Jason Bush, Megan Davies and Alexei
Anishchuk in Moscow; Lionel Laurent in Paris; Writing by David
Stamp; Editing by Will Waterman, Paul Taylor and Philippa