Ukraine crisis: U.S., EU, Canada announce new sanctions against Russia

The United States, the European Union and Canada all announced a tightening of sanctions against Russia on Tuesday over the continuing crisis in Ukraine and Russia's suspected involvement in the downing of Malaysia Airlines Flight MH17.

The U.S. slapped sanctions on VTB, the Bank of Moscow, the Russian Agriculture Bank and the United Shipbuilding Corp over Moscow's support for separatists in eastern Ukraine, the Treasury Department said.

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That expands the list of Russian banks already subject to U.S. sanctions to almost all the largest banks with state ownership of over 50 per cent, except for Sberbank.

"Russia is once again isolating itself from the international community, setting back decades of genuine progress," U.S. President Barack Obama said when announcing the sanctions from the Rose Garden at the White House.

"It does not have to be this way. This a choice Russia and President Putin has made."

The sanctions already in place, Obama added, "have made a weak Russian economy even weaker."

Yet it remains uncertain whether the tougher penalties will have any impact on Russia's actions in Ukraine — nor was it clear what other actions the U.S. and Europe were willing to take if the situations remains unchanged. U.S. officials said they believe economic pressure remains their most effective tool, and Obama reiterated his opposition to sending lethal aid to the Ukrainian military.

The sanctions on the three banks prohibit U.S. citizens and companies from dealing with debt carrying maturities longer than 90 days, or with new equity. The sanctions on the shipbuilding company, based on St. Petersburg, freeze any assets it may hold in the United States and prohibits all U.S. transactions with it.

When asked whether the deterioration of U.S.-Russia relations indicates the start of another Cold War, Obama said, "It's not a new Cold War. It's Russia's choice to not recognize Ukraine has the right to chart its way."

The president insisted that a diplomatic solution to end the crisis in Ukraine was still possible.

Canada's sanctions increase vague on details

The European Union reached its own agreement on Tuesday on the bloc's first broad economic sanctions on Russia over its role in Ukraine, diplomats there said.

But the mood changed radically earlier this month after the downing of the civilian Malaysia Airlines flight in Eastern Ukraine, an area controlled by pro-Russia separatists, that killed all 298 people on board, including 194 Dutch citizens.

In Ottawa, Prime Minister Stephen Harper issued a statement saying Canada would impose additional sanctions on the Russian regime and 'those close to it."

"In the wake of continued aggression by Russia, which includes the ongoing supply of logistical support and weapons systems to agents of the Putin regime in Eastern Ukraine, Canada is announcing its intent to once again increase economic and political pressure, in the coming days, by imposing additional sanctions on the regime and those closest to it," the statement said.

Last week, Canada announced sanctions targeting arms, energy and financial entities.

The statement Tuesday did not specify whom the new sanctions would target.

Harper did say the move will be co-ordinated with the U.S. and Europe.

Australia's Prime Minister Tony Abbott said on Wednesday he is not considering ratcheting up sanctions against Russia while his government is focused on retrieving Australian victims from the wreckage of the Malaysian airliner disaster in Ukraine.

Abbott has had several telephone conversations with Vladimir Putin in the past two weeks and has credited the Russian president with co-operating with international efforts to retrieve the remains of 298 people killed when Malaysia Airlines Flight MH17 was shot down by a surface-to-air missile likely fired by pro-Russian rebels who then controlled the crash site.

"We already have some sanctions on Russia. I'm not saying that we might not at some point in the future move further. But at the moment, our focus is not on sanctions; our focus is on bringing home our dead as quickly as we humanly can," Abbott told reporters.

'Strong warning' to Russia

Washington believes Malaysia Airlines Flight MH17 was shot down earlier this month in error by the pro-Russia separatists in Eastern Ukraine with a missile supplied by Russia. Moscow has denied any involvement and sought to deflect the blame to Kiev.

The president of the European Commission, Jose Manuel Barroso, and European Council president Herman Van Rompuy said the sanctions were meant as a "strong warning."

"The European Union will fulfill its obligations to protect and ensure the security of its citizens, and the European Union will stand by its neighbours and partners," the EU's top two officials said in statement.

Several European diplomats, speaking on condition of anonymity, said sanctions could be ratcheted up further if necessary.

EU ambassadors clinched their agreement as intense fighting between Ukrainian troops and pro-Russian rebels in eastern Ukraine killed dozens of civilians, soldiers and rebels.

It is expected to be finalized on Wednesday and the measures published in the bloc's Official Journal.

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".

The sanctions will initially last a year but will be reviewed after three months on Oct. 31 to determine their impact on Moscow's behaviour, diplomats said.

"We have to keep a consistent review of the political aspect and provide legal certainty," one senior EU diplomat said.

The deal, which does not require endorsement at a special EU summit, followed an agreement to widen sanctions on Moscow between U.S. President Barack Obama and the leaders of Britain, France, Germany and Italy in a telephone conference on Monday.

Previously, Washington and Brussels have imposed sanctions on specific individuals over Moscow's actions toward Ukraine, but the EU in particular had shied away from measures designed to hurt vital sectors of the Russian economy, not least because of the threat to EU economies.

The EU does more than 10 times as much trade with Russia as the United States does, relying in particular on Russian natural gas to fuel its industry and power its cities.

Fragile EU nations nervous

Some member states are nervous about the risk to their own economies, and EU leaders struggled to strike a balance between inflicting pain on Russia and preventing fragile EU nations from sliding back into recession.

In a letter to EU leaders last week, Van Rompuy said the proposed sanctions package "should have a strong impact on Russia's economy while keeping a moderate effect on EU economies."

There was a consensus on only targeting future contracts, he said, which would leave France free to go ahead with the delivery of helicopter carrier warships it is building for Russia.

Another principle was that EU measures targeting energy technology could hit Russia's oil sector but not its natural gas. Russia is the world's biggest exporter of gas and second biggest exporter of oil; Europe depends on it far more for gas, which arrives mainly by pipeline and is harder to source from elsewhere than oil that arrives mostly by ship.

Probably the most high-impact measure will ban Europeans from buying new bonds or shares issued by banks owned 50 percent or more by the Russian state, which analysts say will affect their ability to finance the economy.

Syndicated loans were not included "at this stage", one senior EU diplomat said, adding that European banks will not be able to purchase targeted debt anywhere in the world.

"It applies to primary markets and to secondary markets, bonds and shares of targeted, well-defined, state-owned Russian banks," he said.