The European Union imposed sanctions on key sectors of the Russian economy yesterday, in what was by far the hardest-hitting response by EU countries since the outbreak of hostilities in Ukraine late last year.
Under an agreement reached by ambassadors of the EU’s 28 member states yesterday in Brussels, Russian banks are to be denied access to European capital markets, with EU entities prohibited to trade equity or debt with Russian banks that has a maturity of more than 90 days.
The trade of “dual-use” technology which can be used for both civilians and defence purposes will be restricted. The new measures also prohibit the sale of arms to Russia, though the arms embargo implicitly gives the green light to France to proceed with the sale of two Mistral warships to Russia, by specifying that only future arms sales will be included. Similarly, the new round of sanctions targets Russian oil, rather than gas, outlawing exports of oil exploration equipment to Russia. About 30 per cent of the European Union’s gas supply comes from Russia.
‘Phase three’
The deal, which does not require endorsement at a special EU summit, followed an agreement to widen sanctions on Moscow between US president Barack Obama and the leaders of Britain, France, Germany and Italy in a telephone conference on Monday.
The sanctions, based on a proposal brought forward by the European Commission last week at the request of EU leaders, are expected to come into force by the end of this week. The “phase three” sanctions represent a serious escalation of economic pressure by the EU which has to date limited its response to the Russian incursion into Ukraine to targeting individuals and companies.
EU ambassadors also agreed yesterday to expand the list of individuals and entities covered by the so-called “phase two” sanctions, adding eight names and three companies to the list. The EU had previously imposed asset freezes and visa bans on 87 people, while 20 firms have seen their assets in the EU frozen.
Markets
The decision, which was announced after the Russian stock market closed, led to falls in stock markets elsewhere as investors weighed the impact of the restrictive measures on European businesses, though some analysts pointed out that the market had already priced in the possibility of sanctions.
The impact of the sanctions on energy firms was evident even before the announcement of the decision, with shares in British oil company BP slumping after it warned of the effect of sanctions on its business.
BP owns close to 20 per cent of Russian gas company Rosneft, which has already been hit by US sanctions. “If further international sanctions are imposed on Rosneft or new sanctions are imposed on Russia or other Russian individuals or entities, this could have a material adverse effect on our relationship with and investment in Rosneft, our business and strategic objectives in Russia and our financial position and results of operations,” BP said in a statement yesterday.
In another indication of the impact of the continuing tensions over Ukraine, French firm Renault, which has a stake in Russia’s largest carmaker, Avtovaz, said its sales to Russia had fallen 8 per cent in the first half of this year.
