The EU and US governments have agreed to impose a new round of sanctions against Russia targeting its oil, defence and finance industries, in response to the country’s continued backing of separatists in Ukraine.

The EU and US governments have agreed to impose a new round of sanctions against Russia targeting its oil, defense and finance industries, in response to the country’s alleged backing of separatists in Ukraine.

The measures are the most extensive imposed on Russia since the Cold War and follow the shooting down of Malaysia Airlines flight MH17 in eastern Ukraine two weeks ago.

The US is expanding its sanctions to include three banks and is blocking the exports of specific goods and technologies to the Russian energy sector, as well as hitting defense companies.

The sanctions imposed on Bank of Moscow, Russian Agricultural Bank, and VTB Bank OAO include banning people from using Russian state-owned banks and limiting their access to US capital markets. The Russian-state owned defense technology firm United Shipbuilding Corp was also hit and the US government is also prohibiting exports of energy-related parts to Russia.

President Barack Obama said the new sanctions would “have an even bigger bite” than the previous ones and would make “a weak Russian economy even weaker”.

“Russia is once again isolating itself from the international community, setting back decades of genuine progress. And it doesn’t have to come to this - it didn’t have to come to this. It does not have to be this way. This is a choice that Russia, and President Putin in particular, has made,” said Obama.

Obama pointed out that the sanctions were not, however, part of a new Cold War. “What it is, is a very specific issue related to Russia’s unwillingness to recognize that Ukraine can chart its own path,” Obama added.

Shortly before the new US sanctions were announced, the EU revealed its new hard-hitting measures targeting Russia’s state-owned banks, arms and technology sectors. However, the sanctions fell short of hitting the energy sector, upon which the EU is hugely reliant on. A list of wealthy individuals believed to be close to President Vladimir Putin was also drawn up, who will be subject to asset freezes and travel bans. The EU is Russia’s largest trading partner and therefore its measures are likely to hit the country the hardest.

In a jointly issued statement, the president of the European Council, Herman van Rompuy, and the head of the European Commission, José Manuel Barroso, said that the sanctions package was a strong warning that the “illegal annexation of territory and deliberate destabilization of a neighboring sovereign country cannot be accepted in 21st century Europe.”

“Furthermore, when the violence created spirals out of control and leads to the killing of almost 300 innocent civilians in their flight from the Netherlands to Malaysia, the situation requires urgent and determined response. The European Union will fulfill its obligations to protect and ensure the security of its citizens. And the European Union will stand by its neighbors and partners,” the statement added.

The EU will review the sanctions after three months to determine if any progress had been made towards resolving the Ukraine conflict. It had previously been reluctant to issue new sanctions and the measures mark a change in tact following the downing of flight MH17.

The decisions will restrict Russia's access to EU capital markets and EU nationals and companies will no longer be able to buy or sell new bonds, equity or similar financial instruments with a maturity exceeding 90 days, issued by major state-owned Russian banks, and their subsidiaries. Services related to brokering will also be prohibited.

In addition, an embargo on the import and export of arms to Russia was agreed and exports of certain energy-related equipment and technology to Russia will be subject to prior authorization. Export licenses will be denied if products are destined for deep water oil exploration and production or Arctic oil exploration or for shale oil projects in Russia.

Implications

The issue of a sanctions crackdown on such individuals has potential implications for the wealth management industry that has secured business from Russians and other wealthy individuals from the former Soviet Union and Eastern Europe in recent years.

Barclays said in a statement that the news could only add more pressure to an already “challenging operating and financing environment”.

“The intensification of sanctions by the EU and the US appears to have been widely anticipated by markets. Following the downing of the Malaysia commercial jet the week before last, the EU signaled that it would intensify sanctions and a draft of the sanctions had been made available. The US had also indicated it would take more action. Market issuance of Russia banks and companies by has been very light since the crisis intensified at the end of January and has recently ground to a standstill,” said Barclays.

Previous sanctions targeted individuals with close ties to Putin, including Sergei Ivanov, the president’s chief of staff and Russian billionaire Gennady Timchenko. Sanctions were also imposed on Bank Rossiya, the personal bank for senior officials of the Russian Federation.

The latest action by the US and EU comes after the growing separatist conflict in Ukraine, which has seen an increasing death toll as the government seeks control following a failed cease fire.

Tensions in Ukraine have risen as a result of continued action by pro-Russian separatists who have taken over large parts of eastern Ukraine since Crimea was annexed four months ago.