WAGING WAR AGAINST RUSSIA

European governments have agreed to impose sweeping sanctions on Russia, targeting state-owned banks, imposing an arms embargo, and restricting sales of sensitive technology and export of equipment for the country's oil industry, in response to Moscow's continued backing for separatists in eastern Ukraine.

The punitive measures are  the most extensive EU sanctions imposed on Russia since the cold war.

The most important measure agreed was to deny Russian state-owned banks access to European capital markets. Under the agreed sanctions, Europeans will not be permitted to buy debt, equity or other financial instruments with a maturity higher than 90 days in Russian state-owned financial institutions. Brokering or other services linked to any such transactions will also banned.

Any trade in arms and "related material" with Russia, both import and export, will be banned but the embargo will only apply to future contracts, and therefore would not affect the €1.2bn sale of two French Mistral helicopter carrier ships already agreed. Russia imports relatively few arms from the EU, but sells Europe weapons worth more than €3bn.

Certain technology related to the energy industry will require specific prior authorisation, and export permits will not be given for exploration or production equipment for deep-water or arctic drilling, or for shale exploration.

The measures do not affect the actual trade of oil, gas or other commodities.

Under the new measures, equipment and technology on the EU list of dual-use items, with both civilian and military purposes, can not be sold to Russian companies involved in any way in the arms industry – an export trade estimated to be worth around €20bn.

The economic sanctions are due to take effect later this week and be reviewed after three months.

Furthermore, another eight names of individuals and three entities will be added on Wednesday to the EU blacklist of Russians subject to asset freezes and travel bans. Of those, four of the new individuals on the sanctions lists were described by an EU officials as "cronies" of President Vladimir Putin.

Consequences

• The European sanctions are also bound to affect a wide range of European companies, including banks in Vienna, industrial equipment makers in Germany and automakers and parts suppliers across the continent.
• The knock to confidence from harsher European sanctions on Russia could spoil the euro zone's budding economic recovery even if it shrugs off the fallout on trade. It could create a blow on confidence and have a knock on effect on investment.
• These measures mark a fundamental change in how Europe deals with Russia, one which carries risks not just for Moscow but for Europe itself. 
• Companies do not know if they can still sell their products to Russia in three months' time or a year. Banks are uncertain whether loans will be paid back. It is unclear for energy users and consumers what will happen with oil and gas prices. 
• Policymakers' biggest hypothetical concern is about the potential for gas supplies to be interrupted, requiring countries to seek more expensive supplies from elsewhere - which could depress spending in other areas even further.

Retaliation

• Russia will retaliate and could erect informal barriers such as stricter health and safety rules to make it harder for foreigners to do business in Russia.
• There could even be the threat of confiscation of productions sites in Russia from European companies. Any counter strike from Moscow to sanctions would fall heaviest on European countries with the deepest trading ties (Germany, Netherlands, Austria, Italy, France)
• The largest repercussions may be felt from potential restrictions on Russian banks' freedom to refinance themselves in Europe. This would hit Russia's two biggest banks, Sberbank and VTB Bank, whose Austrian arms were recently taken under the watch of the European Central Bank. Any retaliation by Moscow could affect European banks active in Russia, such as Italy's UniCredit, Austria's Raiffeisen or France's Societe Generale.