Malaysia Airlines MH17 crash: EU prepares tough sanctions package targeting Russian economy

Tougher sanctions designed to target key sectors of the Russian economy for the first time over the Ukraine crisis are set to be imposed on Moscow by Britain and other European Union countries.

The proposals represent the most serious action so far by the EU and include measures to deny state-owned Russian banks, which play a key role in keeping Moscow’s stuttering economy afloat, access to capital - much of it brokered in the City of London.

The campaign to ratchet up pressure on Russia in the aftermath of the MH17 disaster also saw Alexander Bortnikov, head of Moscow’s FSB security service, among 15 individuals and 18 companies or entities added a list of visa bans and asset freezes.

The package provoked an angry response from Russia, whose ambassador to Britain described the sanctions as “illegal, unreasonable and counter-productive” at a press briefing in London.

Alexander Yakovenko insisted there was “no evidence” that Moscow had supplied weapons to Ukrainian separatists, including the missile believed to have been used to shoot down the Malaysia Airlines jet and claimed the West had based its case on material published on social media sites which had “proved to be forgeries”. He added that Moscow had evidence that Ukrainian missile units had been in the vicinity of the crash site.

Mr Yakovenko said: “Needless to say we will consider any further sanctions against us and the measures of political pressure as clear evidence that our Western partners cannot substantiate their allegations and [are] eager to engage in a cover-up of the true causes of the MH17 tragedy.”

The sanctions, scheduled to be finalised next week after months of prevarication in the EU over demands for punitive action against its main gas supplier, will affect a broad sweep of the Russian economy. Officials insisted the package was designed to share the burden of lost business across the main EU powers: German technology, Britain’s finance sector and French defence sales.

A key measure nonetheless is a ban on European investors from buying new debt or shares in banks which are 50 per cent or more owned by the Russian state. These banks raised half of their £12.5bn in capital needs in EU markets last year, most of it in London.

Michal Dybula, an analyst with BNP Paribas, said: “If implemented, such sanctions would be a serious blow to the Russian economy, exacerbating an already very likely recession this year and sustaining an economic depression for longer.”

An arms embargo will also be imposed. But despite demands from Britain for France to abandon a 2011 deal worth £1bn to sell two amphibious warships to Moscow, it will not be retrospective and therefore allow the sale to go ahead. Paris this week accused London of hypocrisy after it emerged that hundreds of UK export licences for arms and “dual-use” material remain valid.

Technology for deep-sea drilling and energy exploration in shale and the Arctic will also be targeted to impose costs on Russia’s lucrative gas and oil industry, which provides nearly 70 per cent of its export revenues.

In order to avoid the sanctions, EU foreign ministers have said Moscow must halt the flow of weapons across its border to Ukraine and use its influence with separatists to ensure an independent investigation into the loss of MH17.