* Russia seen as tougher sanctions target than Libya, Iran
* Effect of sanctions on Moscow may not be significant
* Washington wants to tighten the squeeze
By Peter Apps, Warren Strobel and Luke Baker
LONDON/WASHINGTON/BRUSSELS, May 2 Western states
used targeted sanctions to isolate Libya's Muammar Gaddafi and
push Iran into nuclear negotiations. Using similar tactics
against President Vladimir Putin's Russia is a challenge on an
entirely different scale.
Not only is the volume of Russian money in the international
system much greater than anything tied to Gaddafi or Tehran but
the sophistication with which it is moved, held and sometimes
hidden is also much greater.
Some of the Western bankers, money managers and oil traders
who help keep that money moving are unconvinced sanctions will
have a truly significant effect.
There is also a question about political will in the
European Union, which relies on Russia for a third of its energy
needs, to go further.
U.S. experts travelled to Brussels this week and held what
one U.S. official called "exceptionally tense" meetings with
representatives from EU and some non-EU nations.
The Americans expressed concern that the Europeans would not
be able to agree tougher trade, energy and financial sanctions,
said the official, speaking on condition of anonymity.
The sanctions "are having an impact economically but they
are not changing behaviour, that's the paradox and that's why we
need to tighten the squeeze", the official said.
As pro-Russia militants seize more public buildings in
Ukraine's turbulent east and violence escalates, President
Barack Obama and Germany's Angela Merkel met in Washington and
agreed that further measures would be taken if Moscow continued
to destabilise its neighbour ahead of elections on May 25.
But Obama acknowledged that some of the 28 EU member states
would be more vulnerable to such sanctions than others. "Not
every country is going to be in exactly the same place," he told
a White House news conference with Merkel.
In turn, Merkel said that if required "we will move to a
third stage of sanctions. I will underline this is not
necessarily what we want."
Existing sanctions have largely targeted individuals and,
while there has been an outflow of capital from Russia, there is
little evidence that the measures are forcing Putin to rethink.
Russian buyers have pulled back on new New York real estate
deals while Russian banks and firms are turning to Asia to
borrow money as Western lenders shy away.
But there are no signs of any effect on London's superheated
property market, where oligarchs like to park their money.
"The Russian economy is globally integrated in ways that
Iran or Libya never were," says Nigel Inkster, former Deputy
chief of Britain's Secret Intelligence Service (MI6) and now
with London's International Institute for Strategic Studies. "It
will be much harder to apply sanctions."
Washington has long used its banking muscle to force
financial institutions to help it freeze out its enemies. After
the Sept. 11, 2001 attacks, it was able to damage Al Qaeda.
The threat of depriving Swiss banks of U.S. licenses forced
Switzerland to open up its secretive banking sector.
During the 2011 Libya war, Western states were able to
target the front companies and individuals Gaddafi was using to
both sell Libya's crude oil and buy refined fuel to supply his
army. At the same time, they helped the opposition find buyers
for oil from rebel-held Libya.
After Washington sanctioned Gaddafi, the U.S. government
seized about $39 billion of his assets in a single weekend, one
former U.S. Treasury official recalled.
With Iran, the U.S. Treasury and others added a steady flow
of new targets to sanction in order to block off routes Tehran
created to try and continue trading.
BUSINESS AS USUAL?
After Washington announced new sanctions on Monday including
travel and financial restrictions on Kremlin ally Igor Sechin,
head of state oil firm Rosneft, oil traders and executives -
both Russian and Western - saw little immediate impact.
"So he cannot fly to drink with U.S. energy executives,"
said a Russian oil trader. "But otherwise business will
Rosneft itself, 20 percent owned by BP, is
not covered by the sanctions and Western firms said they would
continue to trade with it.
A senior U.S. Treasury official defended Washington's
incremental approach and said Russia is "an economy that is
losing international financing," citing Russian firms', and even
the government's, increasing difficulties in financing debt.
"There's a cumulative effect that grows over time. Sanctions
tend to have medium-term effects. That's where we think this is
headed," said the official, who spoke on condition of anonymity.
The EU sanctions have been even more tightly focused,
imposing travel bans and assets freezes on Russians and
Ukrainians involved in the annexation of Crimea, but stopping
short of targeting specific companies.
Wider trade sanctions would cause pain on both sides.
"I think everybody recognises that if we move to sectoral
sanctions, that would have an impact on the global economy, and
on national economies," said another U.S. official this week.
The sanctions' effect on Western trade and business with
Russia's energy sector look modest, at least so far.
Some major oil firms have expressed reservations about new
projects in Russia but few, if any, existing
business deals have been suspended.
Exxon Mobil Corp's partnership with Rosneft to
explore for oil in Russia's Arctic shelf is shielded from the
latest measures and will likely continue as Arctic oil
production is in the interest of both sides, experts say.
IN NEW YORK, RUSSIANS GONE
While few believe Russia will be completely isolated, given
recent efforts to woo Asia, some impact is evident.
Only a few years ago, Russians were the largest single group
buying luxury New York apartments.
"They're gone," said Sotheby's International broker Nikki
Field said. "They've been gone since the Crimean outbreak."
Rich Russians now seem to be moving money to Europe.
Central bank data showed an estimated $64 billion capital
left Russia in the first three months of the year, as much as in
the whole of 2013.
Money in London or elsewhere in Europe could be more easily
seized than if it remained in Russia. But money managers and
transparency campaigners say the wealthiest hold assets in
trusts and fund companies that make them hard to reach.
Furthermore, Britain is wary of deterring rich investors.
Capital flight will strain Russian banks as they and other
companies find Western lenders more reluctant. Executives now
look to Asia in the hope of finding business there.
Rosneft's Sechin toured Asia in March, while Putin will
visit China this month. State-backed Sberbank held roadshows in
Singapore and Hong Kong in April while gas giant Gazprom will
also meet investors.
Asian buyers, particular China, have provided a lifeline to
Iran but have used the sanctions to justify paying less.
Whether Asia can meet Russia's need for investment and
lending is unclear.
"Over the long term, (Asia) may supplant the European and
American markets for us, but it won't be quick," Alexander
Ivanov, deputy head of state-run bank VEB, told reporters after
Western banks declined to syndicate a new loan.
(Additional reporting by Adrian Croft, Justyna Pawlak and Jan
Strupczewski in Brussels and Timothy Gardner in Washington;
Editing by Giles Elgood)