U.S. Prepares Russia Sanctions as Ukraine Unrest Simmers

The top American diplomat warned that the U.S. and Europe are ready to level more sanctions against Russia in the absence of steps by President Vladimir Putin to de-escalate tensions in Ukraine.

“We are not announcing a new round of sanctions today, but we are going to continue to take steps to prepare in the event that the circumstances on the ground warrant those sanctions,” U.S. Secretary of State John Kerry said at a news conference at the headquarters of the North Atlantic Treaty Organization in Brussels today. Revoking Putin's authority to use force in Ukraine is “a great step, but it could be reversed in 10 minutes, and everyone knows that,'' Kerry said.

Russian lawmakers voted today to rescind the authorization they gave Putin on March 1 to use force in Ukraine. The European Union on June 23 demanded Russia overturn that mandate, which helped fuel months of market volatility in Russia and Ukraine.

Ukrainian President Petro Poroshenko held talks with leaders in Russia, Germany and France to discuss ways to end months of fighting that’s killed more than 400 people. Poroshenko said he’ll present a draft constitution tomorrow to Ukrainian and EU officials that seeks to widen regional powers in an attempt to calm the situation in the country’s east.

‘‘Our aim is not war, it’s not Ukraine who started it,” Poroshenko said at a conference in Kiev today. “But we are not going to agree to peace at any cost and any conditions.”

On Agenda

German Chancellor Angela Merkel said additional sanctions against Russia could be “back on the agenda” if further progress isn’t made to end the conflict as the Obama administration was said to ready penalties of its own.

Speaking to the German parliament days before this week’s European Union summit, Merkel said that leaders might start to weigh wider measures against Russia. In the U.S., the government is preparing sanctions on technology aimed at exploiting and producing oil and gas products, a major part of the country’s economy, according to three people briefed on the plans.

The biggest difference could be made by the Russian president publicly calling on the separatists to lay down their arms and getting his diplomatic service to achieve this goal, according to Kerry.

“Moving forces out, not allowing tanks and rocket launchers to actually cross the border -- there are many concrete things that could make a difference,” he said, adding that “we are delighted” by the move to rescind the authority for military intervention in Ukraine.

Truce Threatened

Militants, seeking closer ties with Russia, have continued to attack government forces defying a week-long cease-fire supported by both Putin and rebel leaders. They downed an Mi-8 chopper in the eastern city of Slovyansk yesterday, killing all nine people on board.

Rebels have violated the truce about 40 times since June 20 days, Ukraine’s National Security Council said on its website today. The country’s border service has detected the presence of unknown gunmen and Russian troops, with military vehicles deployed near the two countries’ frontier, it said.

A firefight erupted in the villages of Biryukovo and Dyakovo in the Luhansk region overnight, and government troops suffered casualties in a skirmish near the city of Sverdlovsk on June 24, according to the council.

A squadron of Russian fighter jets was moved to a Russian city 30 kilometers (20 miles) from the border, it said.

‘Third Stage’

While diplomatic solutions are preferred, Merkel told the German parliament in Berlin today, “if nothing else helps, sanctions can be put back on the agenda, and this time they would be third-stage.”

Two top U.S. business lobbies plan to publicly break with Obama over imposing more sanctions on Russia and are preparing to run newspaper advertisements tomorrow in the New York Times, Wall Street Journal and Washington Post, warning that more sanctions risk harming U.S. workers and businesses, said a person familiar with the plans, who asked not to be identified to discuss private deliberations.

Laura Lucas Magnuson, a White House National Security Council spokeswoman, said in an e-mail that the administration has had “frequent conversations with business leaders on this issue since the beginning of the crisis to understand their concerns.” The U.S. can’t proceed with “business as usual,” she said.

Stop Support

European officials, including U.K. Foreign Secretary William Hague, urged Russia to take action to stop “the flow of arms across the border, to stop supporting illegally armed separatist groups in eastern Ukraine.”

Hague, speaking to reporters before the meeting of North Atlantic Treaty Organization foreign ministers in Brussels today, said that “in the absence of that action by Russia, the case for stronger sanctions by the European Union will of course become stronger.”

Russian stocks and the ruble fell as investors wagered yesterday’s gains were overdone after rebels violated the truce.

The Micex Index fell from an eight-month high. The gauge plunged 2.4 percent to 1,481.95 in Moscow after jumping to the highest since Oct. 22 yesterday.

The ruble fell from the strongest level since January, sliding 0.1 percent to 39.3309 against the central bank’s dollar-euro basket, used to smooth currency fluctuations that can hurt exporters. It fell 0.1 percent to 33.8425 per dollar by 2:48 p.m. in Moscow. Russian bonds were little changed as the Finance Ministry sold out its first debt auction in a month.

Respect Commitments

NATO Secretary General Anders Fogh Rasmussen said today that “we see no signs that Russia is respecting its international commitments.”

The government in Kiev and its U.S. and EU allies say Russia is fueling the conflict by allowing weapons including tanks and anti-aircraft missiles -- like the one that downed a military plane June 14, killing 49 soldiers -- to flow to rebels into Ukraine across its border. They also say Russia has provided manpower and other support to the rebels, who sent representatives to speak to senior officials in Moscow last month to seek funding.

Russia’s Foreign Ministry said the 28-member bloc is ignoring “inconvenient” facts about the fighting between Ukrainian forces and separatists. It decried the deaths of children, thousands of refugees fleeing to Russia and violations of Russia’s borders.

“We think, and it cannot be avoided, that there is a need to start talks about the future organization of Ukraine itself and guarantee the lawful rights and interests of people who live in the southeast of the country,” Putin told reporters in Vienna yesterday.

Those talks are “extremely important,” though it’s “senseless” to demand rebels in Ukraine lay down their arms, he said. Russia will always protect Ukrainians who feel “part of the Russian world,” Putin said, adding that he hopes force won’t be needed.

To contact the reporters on this story: James G. Neuger in Luxembourg at jneuger@bloomberg.net; Nicole Gaouette in Washington at ngaouette@bloomberg.net; Volodymyr Verbyany in Kiev at vverbyany1@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net; Alan Crawford at acrawford6@bloomberg.net; Susan Warren at susanwarren@bloomberg.net Paul Abelsky

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