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Russia defiant in face of historic Western sanctions over role in Ukraine conflict

MOSCOW/DONETSK -- A defiant Russia dismissed Wednesday unprecedented Western sanctions over Ukraine after Brussels and Washington unveiled the toughest punitive measures against the Kremlin since the Cold War.

The third round of U.S. and EU sanctions aims to force Russia to change tack and halt its support of separatists in Ukraine by targeting its vital financial, arms and energy sectors.

But Russia's first deputy prime minister, Igor Shuvalov, made light of the restrictions, also designed to hit the oligarchs in Russian President Vladimir Putin's inner circle.

“And what about the sanctions? In for a penny, in for a pound,” Shuvalov quipped to journalists.

Financial institutions put on a brave face, saying their operations would not be affected, while a top official unleashed a diatribe against the administration of U.S. President Barack Obama.

“Obama will go down in history not as a peacemaker — everyone has already forgotten about his Nobel Peace Prize — but as a U.S. president who started a new Cold War,” Alexei Pushkov, chairman of the foreign affairs committee at the Russian parliament's lower house, said on Twitter.

There was no immediate official reaction from Putin's office or the foreign ministry but Moscow has long insisted sanctions would merely bring Russia's society together and make its economy more self-reliant.

The stepped-up sanctions came as Moscow dismissed claims it was responsible for supplying the missile that downed Malaysia Airlines flight MH17, and fighting in Ukraine showed little sign of abating.

They will notably make it tougher for Russian state-owned banks to access European financial markets, forcing their costs higher and hobbling an already struggling economy.

Russia's Central Bank said that financial institutions were working normally and that if necessary it would adopt measures to protect targeted lenders which include the country's second-largest bank VTB.

'Driven into corner'

Economists have warned that Europe's own economy would suffer too from the so-called sector sanctions against its biggest source of energy and its major trading partner.

Despite the dismissive talk in Moscow, a number of economists acknowledged the new restrictions would be painful to absorb for Russia, and could stoke social tensions as its economy is sliding towards a recession.

“The current amount of corporate debt is US$700 billion, these debts should be refinanced,” Igor Nikolayev, head of the FBK Strategic Analysis Institute, told AFP, pointing to a lack of cheap loans in Russia.

Nikolai Petrov of the Moscow-based Higher School of Economics said that this time the sanctions would be felt by everyday Russians — and predicted they would drive an even greater wedge between him and the West.

“The confrontation will increase abruptly. Putin has been practically driven into a corner and this man does not make concessions under pressure,” he told AFP.

Some EU diplomats have also expressed concerns, warning sanctions may convince Putin that he no longer has anything to lose by further escalating the Ukraine conflict.

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U.S. President Barack Obama speaks on the South Lawn of the White House in Washington, Tuesday, July 29. (AP)

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