U.S. Prepares Russia Sanctions as Ukraine Unrest Simmers

The U.S. kept up pressure on Russia to do more to de-escalate tensions in Ukraine or face stiffer American and European sanctions as violence marred a temporary cease-fire in the conflict-torn former Soviet republic.

“Moving forces out, not allowing tanks and rocket launchers to actually cross the border -- there are many concrete things that could make a difference,” U.S. Secretary of State John Kerry said at a news conference at NATO headquarters in Brussels yesterday. “We are going to continue to take steps to prepare in the event that the circumstances on the ground warrant those sanctions.”

With momentum behind peace efforts in Ukraine flagging, German Chancellor Angela Merkel joined the top U.S. diplomat in warning that additional sanctions against Russia could be “back on the agenda” if further progress isn’t made to end the conflict. The Obama administration is preparing penalties aimed at specific areas of the Russian economy, including energy and technology, according to three people briefed on the plans.

Ukrainian President Petro Poroshenko held talks yesterday with the 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 today to Ukrainian and European Union officials that seeks to widen regional powers in an attempt to calm the situation in the country’s east.

Shaky Truce

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

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

Rebels have violated the truce more than 50 times since June 20, leaving 18 people dead and 27 wounded, Poroshenko said in a statement on his website yesterday. Ukraine’s border service has detected the presence of unknown gunmen and Russian troops, with military vehicles deployed on the Russian side of the two countries’ frontier, according to the country’s National Security Council.

Clashes Persist

A firefight erupted in the villages of Biryukovo and Dyakovo in the Luhansk region on June 25, and government troops suffered casualties in a skirmish near the city of Sverdlovsk the previous day, according to the council. Ten soldiers were wounded in clashes across the Donetsk region yesterday as government checkpoints came under fire, a spokesman for the military, Oleksiy Dmytrashkovskyi, was cited as saying by Interfax.

A squadron of Russian fighter jets was moved to a Russian city 30 kilometers (20 miles) from the border, the security council said on its website.

During a discussion by phone with Merkel, Poroshenko and French President Francois Hollande, Putin spoke “in favor of extending the cease-fire and organizing a sustained negotiation process,” according to a statement by the Kremlin.

Russian markets fell yesterday as investors wagered that the previous day’s gains were overdone after rebels violated the truce. The Micex Index fell from an eight-month high, plunging 2.4 percent to 1,481.95 by the close in Moscow. The hryvnia traded little changed at 11.93 per dollar.

Wider Measures

Speaking to the German parliament days before this week’s EU 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.

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

Canadian Finance Minister Joe Oliver called for “effective” and “targeted” sanctions directed at Russia as part of a “tough response” to Putin’s actions in Ukraine.

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 yesterday, adding that “we are delighted” by the move.

Weapons, Manpower

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.

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

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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