EU to Debate Tier Three Sanctions against Russia - Capital Market Access and Limits on Sensitive Technologies

Europe’s foreign ministers failed to agree new sanctions against Russia for its alleged role in the downing of MH17 despite a push by Britain, Sweden and a group of eastern European countries for an arms embargo to be imposed on the Kremlin.

The ministers instead asked EU officials to draw up wider-ranging measures - but only if Russia fails to co-operate with the West in the future. The US and several European allies believe a Russian-supplied missile system was used by Ukrainian separatists to shoot down the Malaysia Airways airliner over eastern Ukraine last Thursday.

But an embargo met resistance from other EU countries, particularly France, which was forced to defend its decision to continue honouring a €1.2bn contract to sell Mistral-class helicopter assault ships to Russia, Financial Times writes.

Instead, the hardliners won concessions that the European Commission will, for the first time, be asked to present options for broader economic sanctions - including blocking Russian access to Europe's capital markets and limits on military and other "sensitive technologies", including in the energy sector - to diplomats on Thursday.

The wrangling came as Russia's former finance minister Alexei Kudrin, one of president Vladimir Putin's most-trusted economic advisers, issued a stern warning that Russia's stand-off with the west would hurt the country's economic and political modernisation.

In an interview with Itar-Tass, he said conservative forces had seized upon the Ukraine crisis to push the country towards an isolationist course, and this ran counter to the interests of Russian business, which depends on global funds and markets.

Catherine Ashton, the EU's foreign policy chief, said that among the options on Thursday would be to call for an emergency summit of EU leaders to debate "tier three" sanctions, which target sectors of the Russian economy rather than individuals.

"It would be wrong to interpret lack of EU action today as European weakness," said Mujtaba Rahman, head of European analysis for the Eurasia Group risk consultancy. "Sanctions policy in Europe has become more hawkish, and given the trajectory of this conflict remains escalatory, EU sector sanctions are likely later this year."

Although this would be the first time EU diplomats formally discuss "phase three" sanctions, in their communiqué ministers said such measures would only be implemented if there was not "full and immediate co-operation" from Russia in ceasing the flow of weapons to separatists and in the investigation into the MH17 disaster.

Still, diplomats from hardline countries said they were pleased with the agreement to force a meeting on broader sanctions. In addition, they won agreement that the EU's targeted sanctions can now include individuals "benefiting" from the destabilisation of eastern Ukraine. Advocates say this will allow Brussels to go after the same kind of "cronies" of Vladimir Putin, the Russian president, as the Obama administration.

Asked about the EU meeting on Tuesday, Ben Rhodes, deputy US national security adviser, said that the White House was encouraged that "the Europeans are beginning to move into some of these sectors like finance" - a reference to the decision to draw up broader economic sanctions if Russia does not co-operate.

He said the US was preparing to potentially "ratchet up" sanctions on Russia given that Moscow was continuing to supply weapons to separatists in eastern Ukraine.

The US intelligence community provided more detail on Tuesday to back up its claim that the Malaysia Airlines plane was hit by a SA-11 missile fired from territory controlled by the separatists. US officials said that satellites spotted the launch of the missile, as well as picking up infrared signatures when the missile hit the plane and when the plane crashed.

Intelligence officials said that they believed Russia was continuing to supply separatists with tanks and rocket launchers, but they had no evidence that Russian military personnel were involved with actually firing the missile.

The sanctions fight demonstrated deep divisions over Russia remained within the EU even after the MH17 downing. François Hollande, the French president, for the first time said Paris may cancel delivery of a second Mistral vessel to the Russian navy if the Kremlin fails to heed EU warnings, but said the first ship would be delivered as promised despite pointed criticism from David Cameron, the UK prime minister.

Jean-Christophe Cambadelis, head of Mr Hollande's ruling Socialist Party, insisted the president was "not backing down" but was raising the pressure on Moscow by raising a question over the second Mistral. He attacked Mr Cameron for criticising the sale.

"This is a false debate led by hypocrites," Mr Cambadelis said. "When you see how many [Russian] oligarchs have sought refuge in London, David Cameron should start by cleaning up his own backyard."

Mr Cameron was not alone in his criticism, however. The foreign ministers of Latvia and Lithuania both publicly chastised Paris over the deal, and Carl Bildt, Sweden's outspoken foreign minister, said: "To deliver arms in this situation is somewhat difficult to defend, to put it mildly."