* Russia seen as tougher sanctions target than Libya, Iran
* Effect of sanctions on Moscow may not be significant
* Washington wants to tighten the squeeze
By Peter Apps, Warren Strobel and Luke Baker
LONDON/WASHINGTON/BRUSSELS, May 2 (Reuters) - Western statesused targeted sanctions to isolate Libya's Muammar Gaddafi andpush Iran into nuclear negotiations. Using similar tacticsagainst President Vladimir Putin's Russia is a challenge on anentirely different scale.
Not only is the volume of Russian money in the internationalsystem much greater than anything tied to Gaddafi or Tehran butthe sophistication with which it is moved, held and sometimeshidden is also much greater.
Some of the Western bankers, money managers and oil traders who help keep that money moving are unconvinced sanctions willhave a truly significant effect.
There is also a question about political will in theEuropean Union, which relies on Russia for a third of its energyneeds, to go further.
U.S. experts travelled to Brussels this week and held whatone U.S. official called "exceptionally tense" meetings withrepresentatives from EU and some non-EU nations.
The Americans expressed concern that the Europeans would notbe able to agree tougher trade, energy and financial sanctions,said the official, speaking on condition of anonymity.
The sanctions "are having an impact economically but theyare not changing behaviour, that's the paradox and that's why weneed to tighten the squeeze", the official said.
As pro-Russia militants seize more public buildings inUkraine's turbulent east and violence escalates, PresidentBarack Obama and Germany's Angela Merkel met in Washington andagreed that further measures would be taken if Moscow continuedto destabilise its neighbour ahead of elections on May 25.
But Obama acknowledged that some of the 28 EU member stateswould be more vulnerable to such sanctions than others. "Notevery country is going to be in exactly the same place," he tolda White House news conference with Merkel.
In turn, Merkel said that if required "we will move to athird stage of sanctions. I will underline this is notnecessarily what we want."
Existing sanctions have largely targeted individuals and,while there has been an outflow of capital from Russia, there islittle evidence that the measures are forcing Putin to rethink.
Russian buyers have pulled back on new New York real estatedeals while Russian banks and firms are turning to Asia toborrow money as Western lenders shy away.
But there are no signs of any effect on London's superheatedproperty market, where oligarchs like to park their money.
"The Russian economy is globally integrated in ways thatIran or Libya never were," says Nigel Inkster, former Deputychief of Britain's Secret Intelligence Service (MI6) and nowwith London's International Institute for Strategic Studies. "Itwill be much harder to apply sanctions."
Washington has long used its banking muscle to forcefinancial institutions to help it freeze out its enemies. Afterthe Sept. 11, 2001 attacks, it was able to damage Al Qaeda.
The threat of depriving Swiss banks of U.S. licenses forcedSwitzerland to open up its secretive banking sector.
During the 2011 Libya war, Western states were able totarget the front companies and individuals Gaddafi was using toboth sell Libya's crude oil and buy refined fuel to supply hisarmy. At the same time, they helped the opposition find buyersfor oil from rebel-held Libya.
After Washington sanctioned Gaddafi, the U.S. governmentseized about $39 billion of his assets in a single weekend, oneformer U.S. Treasury official recalled.
With Iran, the U.S. Treasury and others added a steady flowof new targets to sanction in order to block off routes Tehrancreated to try and continue trading.
BUSINESS AS USUAL?
After Washington announced new sanctions on Monday includingtravel and financial restrictions on Kremlin ally Igor Sechin,head of state oil firm Rosneft, oil traders and executives -both Russian and Western - saw little immediate impact.
"So he cannot fly to drink with U.S. energy executives,"said a Russian oil trader. "But otherwise business willcontinue."
Rosneft itself, 20 percent owned by BP, isnot covered by the sanctions and Western firms said they wouldcontinue to trade with it.
A senior U.S. Treasury official defended Washington'sincremental approach and said Russia is "an economy that islosing international financing," citing Russian firms', and eventhe government's, increasing difficulties in financing debt.
"There's a cumulative effect that grows over time. Sanctionstend to have medium-term effects. That's where we think this isheaded," said the official, who spoke on condition of anonymity.
The EU sanctions have been even more tightly focused,imposing travel bans and assets freezes on Russians andUkrainians involved in the annexation of Crimea, but stoppingshort of targeting specific companies.
Wider trade sanctions would cause pain on both sides.
"I think everybody recognises that if we move to sectoralsanctions, that would have an impact on the global economy, andon national economies," said another U.S. official this week.
The sanctions' effect on Western trade and business withRussia's energy sector look modest, at least so far.
Some major oil firms have expressed reservations about newprojects in Russia but few, if any, existingbusiness deals have been suspended.
Exxon Mobil Corp's partnership with Rosneft toexplore for oil in Russia's Arctic shelf is shielded from thelatest measures and will likely continue as Arctic oilproduction is in the interest of both sides, experts say.
IN NEW YORK, RUSSIANS GONE
While few believe Russia will be completely isolated, givenrecent efforts to woo Asia, some impact is evident.
Only a few years ago, Russians were the largest single groupbuying luxury New York apartments.
"They're gone," said Sotheby's International broker NikkiField said. "They've been gone since the Crimean outbreak."
Rich Russians now seem to be moving money to Europe.
Central bank data showed an estimated $64 billion capitalleft Russia in the first three months of the year, as much as inthe whole of 2013.
Money in London or elsewhere in Europe could be more easilyseized than if it remained in Russia. But money managers andtransparency campaigners say the wealthiest hold assets intrusts and fund companies that make them hard to reach.
Furthermore, Britain is wary of deterring rich investors.
Capital flight will strain Russian banks as they and othercompanies find Western lenders more reluctant. Executives nowlook to Asia in the hope of finding business there.
Rosneft's Sechin toured Asia in March, while Putin willvisit China this month. State-backed Sberbank held roadshows inSingapore and Hong Kong in April while gas giant Gazprom willalso meet investors.
Asian buyers, particular China, have provided a lifeline toIran but have used the sanctions to justify paying less.
Whether Asia can meet Russia's need for investment andlending is unclear.
"Over the long term, (Asia) may supplant the European andAmerican markets for us, but it won't be quick," AlexanderIvanov, deputy head of state-run bank VEB, told reporters afterWestern banks declined to syndicate a new loan. (Additional reporting by Adrian Croft, Justyna Pawlak and JanStrupczewski in Brussels and Timothy Gardner in Washington;Editing by Giles Elgood)