Washington has expanded its sanctions against Russian oligarchs and companies with close links to Vladimir Putin, targeting banks, the defence sector and energy producers. The list includes OAO Rosneft, the state-controlled global oil giant with a raft of joint ventures in various parts of the world, including Canada. The European Union intends to follow suit, albeit with somewhat milder measures.

Ratcheting up Russian sanctions became pretty much inevitable once the Kremlin brushed off the first modest Western restrictions and resumed the flow of munitions and militants into eastern Ukraine to bolster faltering separatists battling government forces.

The apparent downing of a Malaysia Airlines passenger jet that crashed in eastern Ukraine Thursday near the Russian border is bound to escalate demands for even tougher measures, particularly if the disaster can be traced to the militants' deployment of Russian missiles.

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Washington's broader curbs are aimed in the right direction. Rosneft alone accounts for nearly 10 per cent of Russia's GDP. But the essential problem with the Western response to Russian provocations remains.

Until the U.S. and its allies show a willingness to impose a wide range of serious penalties that would inflict genuine harm on the already battered Russian economy – even at the expense of potential economic and financial pain at home – the stubborn Mr. Putin may not budge from his current course.

Take the case of Rosneft and three other large Russian entities, gas producer OAO Novatek, state-owned development bank Vneshekonombank and OAO Gazprombank, which is run by a former KGB comrade of Mr. Putin. All will be cut off from equity and debt financing (beyond short-term notes) from investors or lenders with U.S. connections. But their foreign assets and various joint ventures and other business dealings with U.S. companies will not be affected. And that includes Rosneft's partnership with ExxonMobil in Alberta and elsewhere.

No wonder Rosneft chief Igor Sechin, a close ally of Mr. Putin who was already hit personally by earlier U.S. sanctions, was quick to dismiss the risk of damaging fallout for his company.

"I would like to wish that all of our companies have the financial and economic situation that we do. It allows us to implement projects long-term without involving any emergency credit lines."

U.S. business lobbies have signalled strong opposition to wider sanctions and repeated those concerns Thursday. And European countries that rely heavily on Russian energy and have major banking, energy, consumer and other commercial interests in Russia are certainly not going to support any further embargoes that could cost them dearly if Mr. Putin retaliates.

A split has developed in the EU among eastern European members demanding a harder line and southern countries such as Italy and Greece that don't favour even limited sanctions.

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Asked about divisions that prevented the appointment of Italian Foreign Minister Federica Mogherini as the EU's foreign policy chief, Lithuanian President Dalia Grybauskaite remarked that she had no intention of supporting anyone with "openly pro-Kremlin policies."

The good news is that the latest moves by Washington and Brussels sent the already fragile Russian stock market into a bit of tailspin. So even if the oligarchs aren't concerned about being barred from the world's biggest capital market, they ought to be fretting about rising financing costs and increasingly jittery investors.

The harder it gets for their corporate empires to conduct business as usual, the more they are likely to be reminding their buddy Mr. Putin that his imperial dreams come at a rising economic cost that a stumbling Russia can't really afford.

But it would help their case if the West were made of sterner stuff.

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About the Author
Senior Economics Writer and Global Markets Columnist

Brian Milner is a senior economics writer and global markets columnist. In a long career at The Globe and Mail, he has covered diverse business beats, including international trade, the automotive industry, media, debt markets, banking and the business side of sports. More