The EU opened a new front — the toughest since the end of the cold war — against Russia with restrictions aimed at hurting its banks, oil industry, defence and a range of industries that depend on parts from the west.
The US is expected to follow through with similar sanctions, although they will not affect Moscow as much as trade is a fraction of what it is with EU countries.
However, while the latest round of punishing cuts are being hailed as the first round of “phase three” sanctions, they are also expected to adversely affect EU countries and companies also.
They needed the unanimous support of all 28 member states and divisions were deep between them on exactly what steps should be taken to the shooting down of the Malaysian jet with the deaths of 298 people on July 17.
Furthermore, there are reports that, rather than scaling back support for the separatist fighters in eastern Ukraine, President Vladimir Putin appeared to be pressing ahead with even greater support.
The fact that Dutch and other experts investigating the crash site and hoping to retrieve missing bodies had been prevented from doing so by increased fighting also toughened their resolve.
EU leaders at an emergency summit two weeks ago agreed in principle to ratchet up the sanctions, moving against entities such as banks and the oil industry, and add further pressure to known supporters of Putin.
But the details still had to be worked out and EU diplomats spent the hours finalising the details after EU foreign ministers agreed on Monday to legal changes that were necessary first to allow the follow-through.
Member states were also wary of allowing the effect of sanctions to affect one EU country more than another, with Britain being particularly concerned about their effect on the City of London where Russian oligarchs have invested heavily.
At the same time the Netherlands hosts many of Russia’s biggest companies including Rosneft and Gazprom. France has a €1.4 billion deal for two fighter ships from which helicopters and landing craft can be launched, the first due for delivery in November.
They agreed that existing contracts would not be affected so allowing the French deal to go ahead. But British energy company, BP, the fourth bigger investor in Russia with a 20% stake in Rosneft has already complained that its business could be hurt.
Russia’s biggest state-owned banks will be prevented from selling stock or long-term debt on Euroepan markets. The move would “have far-reaching and immediate effect” on Russian capital markets, said Dutch foreign minister, Frans Timmermans.
European banks — and France and Austria are particularly exposed — could face losses as their Russian clients may have problems repaying loans.
The sanctions have tried to stick to handicapping the Russian oil sector — they are the second biggest oil exporter in the world. Parts, especially for drilling in the Arctic, that come from western Europe will be on the ban list.
The sanctions will be reviewed in three months.
* Additional reporting from Reuters.
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