The European Union is expanding sanctions against Russia as reports of new fighting in Ukraine threaten a fragile cease-fire agreement. The new measures are expected to go into effect in the coming days if the cease-fire fails to hold.

EU officials say the latest sanctions are reversible, depending on Moscow’s next moves on Ukraine – notably in finding a resolution to the conflict.

But European Policy Center analyst Paul Ivan said possibly the most significant measure targets several top Russian oil producers and pipeline operators. It would bar them from raising capital and borrowing on European markets.

“Some of them have also been sanctioned by the U.S. From this point of view, it is a bit of Europe catching up with what the United States has been doing,” said Ivan. “It would just increase the costs. It will not be possible to expand some projects.”

The new EU measures also expand visa bans and asset freezes on Russian companies and individuals, as well as some Ukrainian separatists.  

The latest sanctions add to those Europe and the United States already have imposed on Moscow, which is accused of sending troops and weapons to support the insurgency in Ukraine.

Russia denies these accusations. Prime Minister Dmitry Medvedev has warned that Moscow will respond to the new penalties by barring European airlines from flying over Russia. Analysts say that retaliation could hurt Europe and Russia, which receives revenue for the flights.

While the EU measures may deliver a further blow to Russia’s shaky economy, analyst Ivan is skeptical about their overall impact on Russia and its president, Vladimir Putin.

“The Russian economy can enter into recession. It can contract. But the Russians have a very high threshold for pain,” he said. Putin’s “popularity would decrease a bit, but I would say not enough to actually provoke a change in policy.”

Europe feels sting

Meanwhile, the sanctions are hurting Europe, as well as Russia. Last week, French President Francois Hollande suspended a controversial warship sale to Russia, a costly decision for France, in terms of dollars and its reputation as an arms exporter. EU farmers and food exporters also are reeling from a Russian embargo against a wide range of European food products.

The EU always has been divided over sanctions on Russia, with countries such as Poland and the Baltics taking a hard line while the prime ministers of Hungary and Slovakia have been publicly hostile to sanctions.

At Monday’s ambassadors’ meeting, some EU governments wanted to discuss whether new sanctions should be frozen because of the cease-fire in Ukraine or, alternatively, if the new sanctions were implemented, how they could be suspended and when.

The EU has always said its sanctions would be reversible if Russia stopped destabilising Ukraine. Moscow annexed Ukraine’s Crimea region in March, and NATO says Russia has sent several thousand troops to help pro-Moscow separatists in the eastern part of the country.

Austria, Finland, Sweden, Cyprus and Slovakia were among countries wanting to give the cease-fire more time, according to one EU diplomat.

The cease-fire is part of a peace plan intended to end a five-month conflict that the United Nations’ human rights envoy said had killed more than 3,000 people.

Shaky truce holding

The truce was largely holding on Monday, though each side accused the other of sporadic shelling, including in Mariupol, a city of about half a million people.

German Chancellor Angela Merkel told conservative members of parliament in a closed-door meeting in Berlin that the sanctions were needed despite the cease-fire agreement, according to several participants.

Merkel told the deputies that Russia already had deceived the West repeatedly with broken promises and she pointed out that Russian troops are still in Ukraine, they said. The EU had to act decisively now, Merkel was quoted as saying.

The proposed new EU sanctions put Russia’s top oil producers and pipeline operators Rosneft, Transneft and Gazprom Neft on a list of Russian state-owned firms that will not be allowed to raise capital or borrow on European markets, an EU diplomat said earlier.

Gazprom excluded

However, EU sanctions do not include the gas sector and in particular Russia’s state-owned Gazprom, the world’s biggest gas producer and the biggest gas supplier to Europe.

In general, the EU sanctions on Russian companies raising money in the European Union will apply to firms that have turnover of more than one trillion rubles ($26.95 billion), half of which is generated from the sale or transport of oil, the diplomat said.

A further 24 people will be added to a list of those barred from entry to the bloc and whose assets in the EU are frozen.

The list is expected to include new separatist leaders in eastern Ukraine, the government of Ukraine’s Crimea region annexed by Moscow, and Russian decision-makers and oligarchs.

Reuters provided some material for this report.
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