The US government has imposed tougher sanctions on Russia, targeting banks and industry, as part of its punishment over alleged support of separatists fighting in the Ukraine.

The US government has imposed tougher sanctions on Russia, targetting banks and industry as part of its punishment over alleged support of separatists fighting in the Ukraine. Meanwhile, investors reacted to yesterday's crash of a Malaysia civil airliner, which the Ukraine government has said was shot down by pro-Russia forces in eastern Ukraine.

Crude oil and spot gold prices were higher yesterday in the wake of the news; this morning, these prices were down slightly. In Asia, stocks in Japan and Hong Kong were down.

The FTSE 100 was down 29.78 per cent to 6,708.54 by the middle of the trading day on Friday and after an initial surge in price as investors sought a safe haven following the news of the crash, the gold price settled at 1,310.53 this morning.  

The DOW dropped 0.94 per cent to 16,976.81, the NASDAQ sank 1.41 per cent to 4,363.45, while the S&P 500 fell 1.18 per cent to 1,958.12. The Nikkei was also hit, down 154.55 points to 15,215.71.

The shooting down of the jet, from which there were no survivors among the 298 people on board, has escalated the Ukrainian crisis to the point where West-East relations are at their worst since the end of the Cold War in the late 1980s.

"We think the money that could leave Russia may find its way to other EM destinations, as the broader systemic effect of the sanctions is limited and EM fundamentals continue to show some positive signs," a note from Barclays said today. It noted that in the aftermath of yesterday's news, emerging market currencies such as the Russian rouble, Turkish lira and Brazilian real were hit.

Meanwhile, the further sanctions measures against Russian firms, which were announced by the US Treasury Department this week, have expanded on previous sanctions hitting individuals with travel bans and asset freezes as well as Russia’s major banks and some of its biggest companies.

The US Treasury said in a statement that it had targeted the bank Gazprombank and the state-owned financial institution VEB, while the Russian energy firms Novatek and Rosneft were also hit, limiting their access to the US capital markets.

Also sanctioned were eight state-owned Russian arms firms; the breakaway republics of Luhansk and Donetsk; Aleksandr Borodai, the self-declared “prime minister” of the Donetsk, for threatening the "peace, security, stability, sovereignty, and territorial integrity of Ukraine"; and four Russian government officials, including Sergey Beseda, a senior Russian federal security service official.

Wealth 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.

The latest round of sanctions come 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. Western nations have accused Moscow of supporting the separatists, allegations which Russia has denied.

Despite the tough new measures, the sanctions stopped short of freezing the assets of the big companies or preventing US firms from doing business with them.

The US Treasury said in a statement that by imposing sanctions it had increased the cost of economic isolation for key Russian firms in the financial services, arms and energy sectors.

“Russia has continued to destabilise Ukraine and provide support for the separatists, despite its statements to the contrary,” said under secretary for terrorism and financial intelligence David Cohen.  

“Because Russia has failed to meet the basic standards of international conduct, we are acting today to open Russia’s financial services and energy sectors to sanctions and limit the access of two key Russian banks and two key energy firms to US sources of financing, and to impose blocking sanctions against eight arms firms and a set of senior Russian officials,” added Cohen.

EU sanctions

The European Union has also separately agreed to increase pressure against Russia, although the decision falls short of the hard-hitting measures imposed by the US.

The EU said that it agreed to sanction Russian companies that support actions “undermining or threatening Ukraine's sovereignty, territorial integrity and independence" and that it would announce a list of entities by the end of July. EU leaders also said they would ask the EU-owned European Investment Bank to suspend new investments in Russia.

The new round of sanctions follows those imposed by the US and EU earlier this year when Russia annexed Crimea. The measures targetted a number of individuals with close ties to Russian president Vladimir 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.

Malaysian Airlines disaster

Following yesterday's airliner crash, world leaders demanded an investigation into what happened. One US official said Washington strongly suspected a surface-to-air missile that downed the Malaysia Airlines Boeing 777 on a flight from Amsterdam to Kuala Lumpur was fired by Ukrainian separatists backed by Moscow, according to a report by Reuters. The official, who was not named in the report, said there was no evidence Ukrainian government forces fired a missile.

Australian Prime Minister Tony Abbott demanded today that the administration of Russian president Vladimir Putin answer questions about the "Russian-backed rebels" that he said were behind the disaster. More than 20 Australians were among the many nationalities aboard Flight MH17. The Netherlands was the worst affected, with 189 Dutch citizens on the downed plane, the news report said.

Blame

President Vladimir Putin has called for a “thorough and objective investigation” into the crash of the Malaysian Airlines plane, the Kremlin said this morning. Putin also offered his condolences to Dutch prime minister Mark Rutte in a phone call.

Putin earlier placed blame for the downing of the Malaysian plane on Ukraine, saying that the event would never have happened if the Ukraine government had not resumed hostilities with separatists.

“In this regard, I would like to note that this tragedy would not have occurred if there were peace in that country, or in any case, if hostilities had not resumed in southeast Ukraine. And certainly, the government over whose territory it occurred is responsible for this terrible tragedy,” the Kremlin quoted Putin as saying.

Putin said that the Russian government would do everything “to ensure that an objective understanding of what happened becomes available to the Russian public, to the public in Ukraine and throughout the world”.

“These are absolutely unacceptable things and nobody has the right to pass them by without making corresponding conclusions and ensuring that we all have objective information about what happened,” Putin added.