European Union governments reached a deal on Tuesday to impose economic sanctions against Russia, targeting its oil industry, defense, dual-use goods and sensitive technologies, diplomats said, marking a new phase in the biggest confrontation between Moscow and the West since the Cold War.
The EU action was unavoidable, German Chancellor Angela Merkel said on Tuesday, and Russia must decide whether it will take a path of de-escalation and cooperation.
The sanctions will limit Russia's access to EU capital markets, impose an embargo on trade in arms, establish an export ban for dual-use goods for military end users, and curtail Russian access to sensitive technologies particularly in the field of the oil sector, EU government officials said in a statement on Tuesday.
"This package reinforces the recently expanded listing of persons and entities undermining Ukrainian territorial integrity and sovereignty, including the so-called 'cronies', the suspension of EIB and EBRD financing, the restriction of investment and trade with Crimea and Sevastopol and the reassessment of the Russia EU bilateral cooperation with a view to reducing the level of the cooperation," the statement said.
Also on Tuesday, the White House said the U.S. could announce new sanction on Russia "as soon as today."
The EU sanctions will initially last a year, but will be reviewed after three months, the diplomats said.
The sanctions mark a fundamental change in how Europe deals with Russia, one which carries risks not just for Moscow but for Europe itself.
"The impact on trade is relatively small. The far bigger risk is a knock to overall economic confidence," said Gregor Eder, an economist with Allianz, one of the world's largest fund investors.
"A spiral of sanctions together with the loss of overall confidence could be enough to bring the already fragile economic recovery in Europe to a halt,'' Eder said.
The measures will shut state-owned Russian banks out of European capital markets. which could affect European holders of Russian debt and financial services firms that do business there. Other sanction targets include the defense sector and sensitive technologies, including oil, but exclude the vital gas sector, on which Europe is heavily dependent.
Dutch Foreign Minister Frans Timmermans, whose call for justice swayed EU peers last week, said the capital market restrictions "will have a far-reaching and immediate effect."
Timmermans, speaking during a debate about the downing of a Malaysian airliner over rebel-held eastern Ukraine that killed 298 people, most of them Dutch, said the sanctions would send a strong signal to Moscow that "you are on the wrong path."