Ukraine Rebuffs Rebels’ Cease-Fire Call; Sanctions Mulled

Ukraine’s military demanded that pro-Russian rebels surrender and dismissed their offer of a cease-fire as lawmakers prepared to consider sanctions that may curb Russian shipments of natural gas to Europe.

“If there’s an initiative, it should be implemented by practical means, not only with words -- by raising white flags and putting down weapons,” Andriy Lysenko, a spokesman for the country’s military, told reporters yesterday in Kiev. “In that case, no one will shoot at them.”

Ukraine is trying to dislodge thousands of separatists from its easternmost regions, where its U.S and European allies say President Vladimir Putin has been stoking deadly unrest for months. Russia, which denies involvement, wants its neighbor’s military campaign to end and is offering assistance to tackle what it describes as a worsening humanitarian disaster.

As ties between the former Soviet allies sour further, lawmakers in Kiev will vote tomorrow on a cabinet-approved bill that may block Russian oil and gas transit to Europe.

Ukrainian assets continued to decline today. The hryvnia weakened for a fourth session, declining 1.2 percent to 12.7 per dollar, while the yield on the government’s dollar-denominated debt due 2023 rose eight basis points to 9.765 percent, the highest level since mid-May, data compiled by Bloomberg show.

‘Extremely Tense’

A rebel leader broached the possibility of a truce during the weekend, saying in a statement that militants will continue fighting if the government doesn’t end its offensive. The Defense Ministry in Kiev said the army continued to tighten its encirclement of Donetsk, the biggest city in the conflict zone.

As of noon local time yesterday, the atmosphere was “extremely tense” in the city, where 1 million people lived before the conflict flared in mid-April, the Donetsk council said in a statement. Shells were heard hitting most areas, while more than 10,000 residents had no electricity, it said.

Luhansk, capital of the neighboring region of the same name, hasn’t had power, water or phone service for more than a week, according to local authorities.

“A cease-fire isn’t only possible; it’s urgently needed,” Russian Foreign Minister Sergei Lavrov told reporters yesterday in the Black Sea resort of Sochi. “Hospitals can’t function, there’s not enough medications. That amounts to the most severe humanitarian situation.”

‘Serious Provocation’

Russia is discussing urgent assistance with Ukraine, the Red Cross and humanitarian groups run by the United Nations, Lavrov said. “I’m certain we’ll be able to agree on delivering this aid as soon as possible to those who need it most.”

NATO has said Putin may cloak a Russian troop incursion as a peacekeeping effort. Valeriy Chaly, deputy chief of Ukrainian President Petro Poroshenko’s administration, said in an Aug. 9 statement that a column of Russian soldiers and army equipment stopped before crossing the border after leaders asked the U.S., Russia and the Red Cross to intervene, calling the incident a “very serious provocation.” The Kremlin denied the accusation.

As the worst crisis between Russia and the U.S. and its allies since the Cold War intensifies, the government in Moscow last week responded to sanctions by banning Ukrainian, American and European Union food imports.

Ukraine, which stopped receiving Russian gas in June though acts as a conduit for its neighbor’s European shipments, may hit back at the Russian sanctions with “complete or partial” ban on energy shipments, Prime Minister Arseniy Yatsenyuk said last week. It also may forbid Russian planes from using its airspace and cut defense-industry cooperation.

‘We’ll Retaliate’

If new measures against Russia are approved, “we’ll retaliate,” Dmitry Peskov, Putin’s spokesman, said.

World leaders -- who’ve imposed sanctions targeting Russian individuals, companies and its finance, energy and defense industries in a bid to force Putin to de-escalate tensions -- are continuing a diplomatic push to ease the hostilities.

Poroshenko spoke to U.S. Secretary of State John Kerry last night about providing humanitarian aid to Luhansk, according to a statement on his website.

President Barack Obama and German Chancellor Angela Merkel had agreed earlier that “any Russian intervention in Ukraine, even under purported ‘humanitarian’ auspices, without the formal, express consent and authorization of the government of Ukraine is unacceptable, violates international law, and will provoke additional consequences,” according to the White House.

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