Russia Rebuffs Ukrainian Truce as U.S. Broadens Sanctions

Russia dismissed Ukraine’s declaration of a week-long cease-fire as an “ultimatum” and the U.S. imposed sanctions on people linked to the insurgency, accusing the government in Moscow of aiding separatists.

Ukraine called on all fighters to lay down arms, halting the offensive against rebels from 10 p.m. yesterday until 10 a.m. on June 27, President Petro Poroshenko said on his website.

The proposal lacks “the main ingredient -- an offer to start negotiations,” the Kremlin said in a statement. Pro-Russian militants expressed skepticism the truce will be implemented. Militants stirred fighting in at least seven different places overnight, which left nine border troops and one Russian customs official wounded, and an unspecified number of militants killed, Ukrainian authorities said today.

The dispute is flaring as American and European officials warn that more painful penalties affecting Russia’s access to financial markets, technology and military hardware may come as early as next week if President Vladimir Putin refuses to curb tensions over Ukraine.

Putin today ordered a drill that should test the central military region’s readiness and will last through June 28, Vladimir Anikin, a defense ministry spokesman, said by phone. More than 65,000 military personnel and 5,500 pieces of military equipment will be involved in the drill, he said.

‘Impose Costs’

U.S. President Barack Obama yesterday spoke by phone with French President Francois Hollande and German Chancellor Angela Merkel, agreeing in separate conversations that the U.S. and European Union would “impose costs” on Russia if doesn’t work to deescalate the situation, the White House said in an e-mailed statement.

The U.S. “will continue to take action to hold accountable those persons engaged in efforts to destabilize Crimea and eastern Ukraine,” Undersecretary for Terrorism and Financial Intelligence David Cohen said in a statement. “These individuals have all contributed to attempts to illegally undermine the legitimate government.”

The U.S. Treasury Department sanctioned seven individuals, including the acting governor of Sevastopol in Crimea and separatist leaders in the Luhansk and Donetsk regions. Broader measures are being readied against the finance, defense and technology industries, two U.S. officials said.

Peace Plan

The U.S. is levying penalties for the first time since April 28, when it sanctioned people and companies linked to Putin’s inner circle. Russia risks further measures when European Union leaders meet next week unless it helps end the unrest to support an emerging peace plan, Merkel said yesterday.

European diplomats, speaking on condition of anonymity to discuss internal deliberations, said consensus has emerged within the 28-member group during the last week that tougher sanctions may be warranted when EU leaders meet June 26-27 in Brussels if Putin fails to abide by earlier pledges.

Issuing new sanctions now is a message to Putin that if he refuses to abandon support for separatists, more painful measures are coming, one U.S. official said in an interview, speaking on condition of anonymity to discuss policy deliberations.

‘Decisive’ Days

“The days ahead will be very decisive for what we can decide” at the summit, Merkel told reporters in Berlin. “We expect Russia to respond in a positive and constructive way.” While Germany wants to see a cease-fire, “there is planning” for other outcomes as well, she said.

Merkel’s comments reflect an effort by EU powers to gain leverage over Putin by using Poroshenko’s cease-fire as a trigger for expanded sanctions if Putin doesn’t cooperate. Ukraine plans to sign and association agreement with the EU on June 27 in Brussels.

The U.S. and the EU have imposed sanctions on people and companies close to Putin, while threatening the government in Moscow with unspecified economic penalties as pro-Russian separatists clash with Ukrainian forces.

U.S. companies are prohibited from doing business with individuals and entities on the sanctions list, and all assets of those designated that are within U.S. jurisdiction must be frozen, according to the Treasury.

Sending Tanks

Russia has redeployed troops close to the Ukrainian border and sent tanks and other equipment to separatists in recent days, a third American official said yesterday in Washington. Russian special forces are maintaining positions at border sites to support Ukrainian separatists and more troops are headed to the region, the official said.

Group of Seven leaders refrained on June 4 from imposing additional sanctions, instead pushing for diplomatic efforts to resolve the crisis. Leaders including Merkel, U.K. Prime Minister David Cameron and Obama warned then that “we stand ready to intensify targeted sanctions and to implement significant additional restrictive measures” in the absence of a peaceful settlement.

Fighting continued overnight when six Ukrainian border guards and one Russian customs officer were wounded as militants opened fire at the Izvaryne check point, Ukrainian State Border Service said in a statement on its website today. Militants also shot at troop base near Vyselky village in the Donetsk region, stirring fighting and leaving two border troops injured, according to the service.

Militants Killed

A Ukrainian road block was shot at near Slovyansk this morning, Defense Ministry spokesman Vladyslav Seleznyov said on his Facebook account.

Poroshenko met political and business leaders from conflict-wracked regions two days ago to muster support for his peace efforts. His 15-point peace includes early parliamentary and local elections, job creation in the Donetsk and Luhansk regions and freeing all seized buildings and abducted people, according to the statement.

Before the cease-fire can be implemented, Ukraine must reassert control over its border with Russia, across which fighters have crossed, according to Poroshenko. Defense Minister Mykhaylo Koval told lawmakers yesterday that the border is secured.

Russia is increasing security because it’s concerned about the situation on the border, though it’s not building up troop levels, Yuri Ushakov, Putin’s foreign-policy aide, said yesterday.

The separatists are willing to consider the plan, according to Andrei Purgin, a deputy premier of the self-declared Donetsk People’s Republic.

“If we see a true cease-fire, we may stop our actions as well,” he said by phone. “But I think there will be no cease-fire. In practice these statements are only political.”

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