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A sectoral approach to the sanctions regime imposed on Russia would be a significant escalation that could have a much wider impact on trade with the country.

As well as the immediate impact on sectors of the Russian economy targeted by sanctions, GTR understands that such an approach would likely have a broader “chilling effect” on trade with Russia particularly where such trade is reliant on finance from international lenders.

“Wider sanctions would almost certainly affect the ability of European banks to finance the transactions they would otherwise engage in,” says international trade partner at Clyde & Co, Michael Swangard.

“You don’t need to specifically target certain areas with sanctions, but it’s the knowledge of imminent sanctions that can have the broadest effect on trade.”

Barack Obama and Angela Merkel appeared together last week to outline a joint-determination to impose sectoral sanctions on Russia should it fail to change course in Ukraine ahead of the country’s elections on May 25.

A consensus on the exact form sectoral sanctions should take has not yet been reached, but the remarks of both leaders suggest that a tougher, more collaborative effort is likely.

“In Europe, we have taken a position that should further destabilisation happen, we will move to a third stage of sanctions. This is not necessarily what we want, but we are ready and prepared to go such a step,” said chancellor Merkel.

“The view of the majority of people in international commerce is that sanctions make it impossible to do business,” Swangard tells GTR.

“Banks typically apply the most restrictive measure that they can find, like the US sanctions in the Iranian context, because they are so risk averse. It’s much easier to say no than to risk the cost of being in breach of sanctions or of monitoring how best to avoid being in breach.”

“Regardless of the legality of trade, liquidity gets sucked out the system. Trades are prevented which might otherwise be perfectly acceptable.”

The current EU sanctions regime targets a small group of individuals, having little impact on the broader trading environment with Russia.

This step-change may encourage an approach similar to that towards Iran, where sanctions had a much wider economic impact.

“The US has seen how it’s worked with Iran. The sanctions had a much wider remit. The Europeans didn’t set the bar as high as the US but European banks went for that higher bar in any event, resulting in this chilling effect,” says Swangard.

“The sanctions went further practically than they did on paper.”