By Matthew Dalton, Laurence Norman and Felicia Schwartz
BRUSSELS--The European Union on Tuesday agreed to place
sanctions on broad sectors of the Russian economy, EU diplomats
said, marking a significant escalation of the bloc's response to
allegations that Moscow is fueling violent conflict in eastern
Ukraine.
The measures will target four economic sectors: finance,
duel-use equipment that could have military applications, arms and
oil-production equipment. They will sharply restrict the ability of
Russia's state-owned banks, including Sberbank and VTB Group, from
raising financing on European markets, officials said. The measures
also will place an embargo on the arms trade and set restrictions
on exports of militarily sensitive goods and technology used in
unconventional oil drilling and exploration.
The sanctions are expected to be published Thursday. It isn't
yet clear whether they will take effect immediately.
In Washington, U.S. Secretary of State John Kerry demanded that
Russia encourage separatists to accept a cease-fire but signaled
that it is already too late for Russia to avoid the new rounds of
sanctions from the U.S. and Europe.
Mr. Kerry, speaking in a joint news conference with Ukrainian
Foreign Minister Pavlo Klimkin, said Russia has left the world
"with no choice" but to impose further sanctions.
The move is the most significant political step yet taken by the
EU against Russia since Moscow's annexation of Crimea in March.
The EU has so far targeted dozens of Russian and pro-Russian
separatists in Ukraine with an asset freeze and travel ban as well
as hitting some Crimea-based companies. The bloc also has frozen
fresh financing for some EU projects in Russia. On Monday, in a
move aimed at hitting people and companies with close ties to the
Kremlin, the EU also said it would target people who have been
actively supporting the Russian government's actions in
Ukraine.
Russia denies arming the rebels in eastern Ukraine.
Mr. Kerry said he spoke with Russian Foreign Minister Sergei
Lavrov on Tuesday morning to demand that Russian President Vladimir
Putin wield influence on Russian-backed separatists to lay down
their arms to avoid deeper isolation. While Russia has said it
hopes to help de-escalate the situation in Ukraine, Mr. Kerry said
Russia's actions haven't shown "a shred of evidence" that Russia
has a legitimate desire to do so.
Mr. Klimkin said reaching a cease-fire with the rebels would be
"vital" and must be bilateral. Mr. Kerry repeated U.S. charges that
evidence proves Russia has fired at Ukrainian armed forces, and Mr.
Klimkin denied reports that Ukrainians had fired back at
Russia.
With European countries enjoying broad energy, financial and
commercial links with Russia, the EU had until the July 17 downing
of Malaysia Airlines Flight 17 shied away from sector-wide
sanctions on the Russian economy.
The plane crash brought an abrupt change in approach in many EU
capitals. The U.S. and some European governments say they have
evidence that the plane, which was brought down over eastern
Ukraine, was shot down by the separatists. Most of the 298 people
who died came from the 28-nation bloc.
Mr. Kerry also demanded Russia use its influence with Ukrainian
rebels to cease fighting near the site where MH17 crashed and allow
investigators to have "full, unfettered" access to the area.
Over the weekend, the EU's executive arm sent detailed legal
proposals for broader sanctions to the member states.
Under those proposals, the sanctions wouldn't affect contracts
already signed. That means, for example, that the French sale of
the Mistral war ship can proceed.
On Tuesday, one senior official said there was "no substantial
change" from the detailed measures sent to EU capitals.
A second official said there is now a specific exemption for
future contracts needed to maintain EU countries' existing military
capabilities. That would mean a member state can't buy a new tank,
but it can buy a new engine for an existing tank.
Senior officials said the sanctions would last for 12 months,
but EU governments would pledge to keep them under constant review.
The measures could be scaled up or reversed if the bloc judges that
Russia is changing its behavior over the Ukraine crisis.
There also may be a review of the sanctions after three months,
officials said.
The EU also will publish a list of the entities affected by the
broader sanctions.
The White House praised the EU move and said the U.S. is
planning additional sanctions.
"We welcome these early indications that European countries are
going to take additional steps today to impose additional costs on
Russia," White House press secretary Josh Earnest said.
Mr. Earnest said the U.S. will follow suit, with plans to impose
new sanctions on Russia "as soon as today."
Carol E. Lee contributed to this article.
Write to Matthew Dalton at Matthew.Dalton@wsj.com and Laurence
Norman at laurence.norman@wsj.comand Felicia Schwartz at
felicia.schwartz@wsj.com