Putin Presses Ukraine on Gas as EU, U.S. Warn of Sanctions

Russian President Vladimir Putin evoked “genocide” in accusing Ukraine of cutting natural gas flows to areas mired in a separatist conflict as the European Union and the U.S. warned of more sanctions if the crisis escalates.

Putin urged the government in Kiev to ensure energy supplies to rebel-held areas and said Russian gas shipments to Ukraine will stop if the country doesn’t make prepayments, a move that may threaten transit to the European Union. German Chancellor Angela Merkel, U.S. Secretary of State John Kerry and EU President Donald Tusk spoke of possible tougher penalties against Russia if fighting continues.

The threat of a gas cutoff is adding another dimension to the disputes between Ukraine in Russia after they also clashed over which side broke a cease-fire between the rebels and government forces. Ukraine and its allies in the EU and the U.S. accuse Russia of backing the militants in the conflict that has killed more than 5,600 people, according to United Nations estimates. Russia denies military involvement.

“Isn’t it enough that there’s famine there, as well as the” Organization for Security and Cooperation in Europe “finding it to be a humanitarian catastrophe,” Putin told reporters near Moscow. “And then they turn off the gas. What is that called? It already smells a bit like genocide.”

Many Violations

While rebel attacks have subsided, Ukraine said on Wednesday a “full truce” still hasn’t taken effect.

The rebels continue to restrict the access of monitors, OSCE Parliamentary Assembly President Ilkka Kanerva said in a statement the same day. He also called on Russia to press the rebels to meet the terms of the truce.

“Russia’s objection to more eyes along the most volatile border in Europe today raises more concerns that this mission, in its highly limited capacity, is simply being used as a cover, while separatists receive the material support they need,” Kanerva said.

There have been many violations of the cease-fire signed in the Belarusian capital of Minsk Feb. 12, Kerry said in a testimony before the House Foreign Affairs Committee in Washington on Wednesday.

A rebel move to take the port city of Mariupol, or a similar attack, “would immediately merit a much more significant response, which is teed up, and that could be a very serious next level of sanctions coupled with other choices the president may or may not make,” he said.

‘Everybody Understands’

U.S. President Barack Obama hasn’t decided yet on the possible supply of defensive weapons to Ukraine, Kerry said, adding that “everybody understands” that Russia would be able to offset that by providing more weapons to the separatists.

Russia denies accusations of backing the rebels with hardware, cash and troops. Leaders in the Kremlin say Ukraine is waging war on its own citizens and discriminates against Russian speakers, a majority in the Donetsk and Luhansk regions.

EU President Tusk is “very skeptical” about the cease-fire. More sanctions against Russia over the crisis, which has sent its relations with the EU and the U.S. to post Cold-War lows, are still “on the table,” Tusk told the European parliament on Wednesday.

The conflict is devastating Ukraine’s economy and the country is trying to stem capital outflows as it awaits the International Monetary Fund’s approval of a $17.5 billion bailout loan.

Hryvnia, Gas

The hryvnia is the world’s worst-performing currency, having dropped 53 percent against the dollar this year as recession deepened and after central bank reserves fell to the lowest in at least a decade.

Ukraine effectively froze trading on its foreign-exchange market on Wednesday as the monetary authority deployed new measures to help stabilize its currency. The central bank later the same day lifted the ban on banks buying foreign currency for their clients.

Russia stepped up the pressure by demanding that Ukraine pay for natural gas shipped directly to rebel-held areas.

OAO Gazprom, which provides about 30 percent of the EU’s gas, threatened to cut off supplies to its neighbor when prepaid volumes run out. Ukraine’s national energy company, NAK Naftogaz Ukrainy, on Tuesday refused to make a further advance payments while Gazprom is charging it for shipments to the separatist areas, saying it can’t account for the volumes.

Gas Deliveries

Naftogaz said Ukraine is receiving 40 percent of the gas it has prepaid. Andriy Kobolyev, the company’s chief executive officer, in a letter to Alexey Miller, the head of Gazprom, urged the Russian supplier to stop shipments to rebel-controlled border stations, Naftogaz said in a statement.

The EU has conflicting information about supplies to Ukraine’s east, Maros Sefcovic, European Commission vice president for energy, said on Wednesday. He proposed deliveries and payments to the rebel regions be treated as separately.

Merkel said that while pursuing diplomacy, “we say just as much that we can’t rule out sanctions if things get worse.” She said the goal is to have have “security with Russia, not against Russia.”

The separatists said they have withdrawn 400 pieces of heavy weaponry from the front line and urged OSCE monitoring for the pullback, the rebel-controlled DAN news service reported.

Ukraine observed a “significant decline of cease-fire violations” for a second day, Defense Ministry spokesman Anatoliy Stelmakh told reporters on Wednesday.

The Minsk cease-fire accord requires both sides in the almost year-old conflict to withdraw heavy weapons behind buffer zones within 14 days of the truce that came into force on Feb. 15. Rebels last week took the strategic town of Debaltseve after the agreement went into effect.

“The enemy continues to make sporadic attacks,” Stelmakh said. “The last 24 hours still have not become the beginning of a full truce.”

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