US joins EU on Russia economic sanctions

BRUSSELS - The US on Tuesday (29 July) announced a widening of its own Russia sanctions to match the EU's economic sanctions adopted just a few hours previously.

"Today, and building on the measures we announced two weeks ago, the United States is imposing new sanctions in key sectors of the Russian economy: energy, arms, and finance," US President Barack Obama i said at a press conference in Washington.

He said exports of "specific goods and technologies to the Russian energy sector" will be banned, and more Russian banks and defence companies added to an existing blacklist.

"And we’re formally suspending credit that encourages exports to Russia and financing for economic development projects in Russia," he added.

He said the sanctions regime "will have an even bigger bite" as it was widened in close co-operation with the EU.

EU ambassadors earlier on Tuesday adopted the so-called stage three of the sanctions regime, banning trade in Russian bonds and stocks issued by state-owned companies, as well as arms, technology for oil exploration and high-tech items imported by Russian military companies.

"The European Union is joining us in imposing major sanctions on Russia - its most significant and wide-ranging sanctions to date," Obama said.

He accused Moscow of continuing to arm and train pro-Russian rebels in eastern Ukraine, who are still shooting down Ukrainian planes and killing civilians even after the downing of the Malaysia Airlines flight MH17 on 17 July.

Obama said the sanctions regime is already weakening the Russian economy, as foreign investors are staying away and nearly $100 billion (€74bn) in capital is fleeing Russia.

"Russia’s energy, financial, and defence sectors are feeling the pain. Projections for Russian economic growth are down to near zero. The major sanctions we’re announcing today will continue to ratchet up the pressure on Russia, including the cronies and companies that are supporting Russia’s illegal actions in Ukraine," Obama said.

He said this was not "a new Cold War", rather a "very specific issue related to Russia’s unwillingness to recognise that Ukraine can chart its own path."

Will the sanctions work?

Bloomberg has estimated that Russian firms will be cut off from €447 billion worth of funding on EU and US financial markets, but the key question is whether these economic sanctions will have any impact on President Vladimir Putin i.

Obama noted that "we can't in the end make President Putin see more clearly" but both Washington and Brussels are hoping that hitting the Russian economy hard will make Moscow change course.

An EU official on Tuesday in Brussels explained that the sanctions can be scaled back or suspended at any time if there are "political developments" or if they prove too harmful for the EU economies.

Circumventing the sanctions regime is another issue "that always arises" when trade embargoes are put in place, the official said.

Brussels and Washington have been reaching out to other countries - such as Switzerland, Norway, Japan - asking them not to come in and supply to Russia with what it is missing due to the sanctions.

But in the end, the sanctions regime "does not create an obligation to other countries to stick to these measures," the EU official said.

"We are aware there could be a substitution effect, that's why we focused on technologies with a lower risk of substitution. But there will be, as of tomorrow, an outreach [by Russia] to all third states concerned," the official said.