* Sanctions law to be published later Thursday
* Focus on Russian access to capital markets
* Defence, oil-sector technology also hit
By Barbara Lewis and Martin Santa
BRUSSELS, July 31 The European Union formally
adopted sanctions on Thursday curbing arms sales to Russia and
cutting off financing for targeted banks over Moscow's support
for rebels in Ukraine.
Russia has denounced the measures, agreed by the 28 EU
member states on Tuesday, as "destructive and short-sighted",
while fighting has intensified in eastern Ukraine between Kiev
forces and the pro-Russian separatists.
EU officials say the sanctions aim to inflict maximum pain
on Russia and minimum pain on the EU. "We will for sure have an
effect and a very substantial and concrete effect on Russia,"
one EU official said, speaking on condition of anonymity.
The toughest measures aim to prevent Russian banks from
raising money on Western capital markets, while others limit
defence sales and the export of hi-tech equipment for the oil
sector. The sanctions law will be published later in the day in
the Official Journal of the European Union and takes effect from
Friday, Aug 1.
Marking a fundamental shift in how Europe deals with Russia,
the sanctions will mean EU nationals and companies can no longer
buy or sell new bonds, equity or other financial instruments
with a maturity of more than 90 days issued by major state-owned
Russian banks or those acting on their behalf.
Russia's largest banks with state ownership of more than 50
percent include Sberbank, VTB Russian Agriculture Bank
(Rosselkhozbank) and VEB.
In addition, there is a ban on the import and export of arms
from Russia and authorisation will be required for member states
that want to export energy-related equipment.
Export licences will be denied if products are destined for
deep water oil exploration and production, Arctic oil
exploration or production and shale oil projects in Russia.
Europe, which has deep trade links with Russia, was far more
reluctant to act than the United States over Moscow's annexation
of Crimea from Ukraine in March and its support for the rebels.
However, the mood shifted radically after the downing over
eastern Ukraine of a civilian flight from the Netherlands to
Malaysia earlier this month. Western countries say a
Russian-supplied missile fired from rebel-held territory caused
the disaster. Moscow blames the Ukrainian military for the
crash, in which 298 people were killed.
Some EU member states remain nervous about the impact on
their own fragile economies. The sanctions deal was agreed only
after initial proposals were narrowed.
EU subsidiaries of the targeted Russian banks are excluded
from the ban, although prohibited from raising funds for their
parent companies. A ban on hi-tech energy equipment applies to
the oil industry only, and not gas, while a restriction on sales
of defence equipment is limited to future orders.
That means France will be allowed to go ahead with delivery
of a naval helicopter carrier it has already sold to Russia.
Analysts warn that the EU will also suffer.
Russia is the world's biggest exporter of natural gas and
second biggest of oil, and the state depends on energy for
around half of its budget revenue. However, the EU also depends
on Russia for roughly one third of its energy imports.
On the global oil market, crude imports from Russia can
easily be replaced, but Russian gas delivered through pipelines
is less flexible.
European Energy Commissioner Guenther Oettinger repeated in
a German television interview on Thursday that Russia has as
much interest as Europe in maintaining gas supplies to the EU
because of its need for revenue.
So far, Russia has retaliated to the Western sanctions with
bans on imports of some food items.
Russia may restrict fruit imports from Greece - which has
the weakest economy in the EU - next week, RIA news agency
reported, citing a watchdog agency. It may also suspend U.S.
poultry imports, Interfax news agency said.
The EU sanctions will be subject to a three-month review to
assess whether they are achieving their aim of forcing President
Vladimir Putin to "de-escalate" the crisis.
Depending on Russia, EU officials say the sanctions can be
lifted or tightened at any moment. The review will also check
that the sanctions do not have unintended consequences.
Until this week, Europe had imposed sanctions only on
individuals and organisations accused of direct involvement in
threatening Ukraine, and had shied away from wider "sectoral
sanctions". It published a new list of associates of Putin and
companies subject to asset freezes late on Wednesday.
(Additional reporting by Michelle Martin in Berlin; editing by