The European Union's decision to impose broad sanctions against Russia was "unavoidable" after its actions in Ukraine and it is now up to Moscow to make the next move, German Chancellor Angela Merkel said on Tuesday (29 July).

Earlier, the EU agreed for the first time to impose broad economic sanctions against Russian oil companies, banks and defence firms, by far the strongest international action yet over Moscow's support for rebels in eastern Ukraine.

>> Read: EU agrees new sanctions against Russia

"The decision today was thus unavoidable," Merkel said in a statement, adding that EU leaders had repeatedly warned Moscow that the annexation of Crimea and continued destabilisation of east Ukraine were not acceptable.

"It is now up to the leadership in Russia to decide whether they want to go the way of de-escalation and cooperation," Merkel said. "The EU sanctions can be reviewed but further steps are also possible."

Sanctions can be stepped up if necessary

The president of the European Commission, José Manuel Barroso, and European Council President Herman Van Rompuy said the sanctions were meant as a "strong warning" that Russia's actions in Crimea were not unacceptable and would bring "heavy costs" to its economy.

"The European Union will fulfill its obligations to protect and ensure the security of its citizens. And the European Union will stand by its neighbours and partners," the EU's top two officials said in a statement.

Several European diplomats, speaking on condition of anonymity, said sanctions could be ratcheted up further if necessary.

Dutch Foreign Minister Frans Timmermans, whose call for justice swayed EU peers last week, said the capital market restrictions "will have a far-reaching and immediate effect".

Natural gas deliveries not affected

The measures will shut major state-owned Russian banks out of European capital markets and target the defence sector and sensitive technologies, including oil, but exclude the vital gas sector, on which Europe is heavily dependent.

Some member states are nervous about the risk to their own economies, and EU leaders struggled to strike a balance between inflicting pain on Russia and preventing fragile EU nations from sliding back into recession.

In a letter to EU leaders last week, European Council President Herman Van Rompuy said the proposed sanctions package "should have a strong impact on Russia's economy while keeping a moderate effect on EU economies".

There was a consensus on only targeting future contracts, he said, which would leave France free to go ahead with the delivery of helicopter carrier warships is it building for Russia.

Another principle was that EU measures targeting energy technology could hit Russia's oil sector but not its natural gas. Russia is the world's biggest exporter of gas and second biggest exporter of oil; Europe depends on it far more for gas, which arrives mainly by pipeline and is harder to source from elsewhere than oil that arrives mostly by ship.

Financial sector ban

Probably the most high-impact measure will ban Europeans from buying new bonds or shares issued by banks owned 50% or more by the Russian state, which analysts say will affect their ability to finance the economy.

Syndicated loans were not included "at this stage", one senior EU diplomat said, adding that European banks will not be able to purchase targeted debt anywhere in the world.

"It applies to primary markets and to secondary markets, bonds and shares of targeted, well-defined, state-owned Russian banks," he said.