EU heads of government at the negotiating table, with Chancellor Angela Merkel in the middle
European Union governments have agreed to impose sweeping sanctions on Russia, targeting state-owned banks, imposing an arms embargo, and restricting sales of sensitive technology and export of equipment for the country's oil industry, in response to Moscow's continued backing for separatists in eastern Ukraine.
The punitive measures, the most extensive EU sanctions imposed on Russia since the cold war, were agreed by ambassadors from the 28 member states after a seven-hour debate. They decided that Moscow had not fulfilled the conditions laid down by foreign ministers last week, to stop the supply of arms to the rebels and provide full cooperation in the investigation into the shooting down of Malaysia Airlines flight MH17.
US sanctions are expected to follow later on Tuesday July 29.
The president of the European Council, Herman van Rompuy, said the EU measures were meant as a strong warning that "illegal annexation of territory and deliberate destabilisation of a neighbouring sovereign country could not be accepted in 21st century Europe."
"When the violence created spirals out of control and leads to the killing of almost 300 innocent civilians in their flight from the Netherlands to Malaysia, the situation requires urgent and determined response," he said. "The European Union will fulfil its obligations to protect and ensure the security of its citizens. And the European Union will stand by its neighbours and partners."
According to an EU official, the most important measure agreed was to deny Russian state-owned banks access to European capital markets. Under the agreed sanctions, Europeans will not be permitted to buy debt, equity or other financial instruments with a maturity higher than 90 days in Russian state-owned financial institutions. Brokering or other services linked to any such transactions will also banned.
Any trade in arms and "related material" with Russia, both import and export, will be banned but the embargo will only apply to future contracts, and therefore would not affect the €1.2bn sale of two French Mistral helicopter carrier ships already agreed. Russia imports relatively few arms from the EU, but sells Europe weapons worth more than €3bn.
Certain technology related to the energy industry will require specific prior authorisation, and export permits will not be given for exploration or production equipment for deep-water or arctic drilling, or for shale exploration.
The measures do not affect the actual trade of oil, gas or other commodities.
"It is to do with how Russia might seek to exploit its natural resources further in the future, which are obviously an important money earner for the Russian state, and the fact they would probably look to use technology from other countries to do that," a British government source said.
Under the new measures, equipment and technology on the EU list of dual-use items, with both civilian and military purposes, can not be sold to Russian companies involved in any way in the arms industry – an export trade estimated to be worth around €20bn.
The economic sanctions are due to take effect later this week and be reviewed after three months.
Furthermore, another eight names of individuals and three entities will be added on Wednesday to the EU blacklist of Russians subject to asset freezes and travel bans. Of those, four of the new individuals on the sanctions lists were described by an EU officials as "cronies" of President Vladimir Putin, but the names have not yet been released.
The capital market measures are likely to prove the most painful for Russia. Last year, nearly half the bonds issued by Russian state-run financial institutions were issued in the EU's financial markets. Although Russian banks could go elsewhere to raise funds, the added uncertainty will add to the country's borrowing costs.
In Washington, the White House welcomed the introduction of sectoral sanctions in Europe, a move it has been pushing for months, and indicated the US will immediately follow the announcement with its own escalation in sanctions on Tuesday.
"The announcement that we anticipate later today from the Europeans is the culmination of months of diplomatic work that has been done by this administration," said Josh Earnest, the White House press secretary.
He said the White House expected the European punitive measures to "track pretty closely" with those introduced by the US two weeks ago, targeting the energy, defence and financial sectors. That US package, a significant escalation in the previous sanctions regime, was introduced the day before pro-Russian separatists were accused of shooting down flight MH17.
He said the downing of the Malaysian jet was "a head snapper" that changed the international community's stance toward Moscow. "It is certainly reasonable [to assert] the downing of this airliner contributed to the Europeans' willingness to step up to the plate and take the kind of serious action that this administration, and this country, put in place against Russia a few weeks ago," he said.
Earnest added that the US would make its own announcement about sanctions "as soon as today".
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