More U.S. sanctions likely if Russian actions in Ukraine continue

Doina Chiacu and Warren Strobel

By Doina Chiacu and Warren Strobel WASHINGTON (Reuters) - The United States is prepared to step up sanctions against Moscow if pro-Russian military actions in eastern Ukraine continue, a senior U.S. envoy said on Sunday, but it is unclear whether new measures will win European support or slow the Russian-backed separatist revolt. The next round of U.S. sanctions are expected to target Russian business sectors such as mining, banking and energy. But U.S. officials said it was uncertain that Europe would go along with penalties that would affect Russia's economy and powerful energy sector. The sanctions have been the most visible sign of U.S. anger at Russia's annexation of the Crimea region in southern Ukraine last month, reflecting the deepest plunge in U.S.-Russian relations since the Cold War. Pro-Russian activists seized government buildings on Saturday in the eastern town of Slaviansk, about 150 km (90 miles) from the Russian border. Ukrainian security forces were trying to oust the activists, who set up barricades on the outskirts of the city. The American ambassador to the U.N., Samantha Power, said on ABC's "This Week" that the latest events in Ukraine bore "the telltale signs of Moscow's involvement." "The president has made clear that, depending on Russian behavior, sectoral sanctions in energy, banking, mining could be on the table, and there's a lot in between," Power said. "I think we've seen that the sanctions can bite, and if actions like the kind we've seen over the last few days continue, you're going to see a ramping up of those sanctions." Power said sanctions already imposed by Washington have had an impact: the Russian ruble has fallen to an all-time low, the country's stock market has depreciated by 20 percent and investors are fleeing the country. But beyond declines in the ruble and Russian indexes, the impact has been modest. Most of those on the U.S. and EU sanctions list are not known to have extensive business interests. One of those who does is billionaire oil and gas trader Gennady Timchenko. He told Russian television on Saturday his inclusion on the U.S. sanctions list had caused minor problems, mainly because some European banks had become wary of carrying out transactions with any entities linked to him. But he said for him personally, being on the list was "quite an honor. A new round of U.S. sanctions against Russia is likely to target influential people or firms in its business sectors, such as energy, engineering and financial services, as spelled out in President Barack Obama's executive order last month. The U.S. goal to put more pressure on Russian President Vladimir Putin's closest business allies. When sanctions were announced in March, the U.S. Treasury said it would largely focus on sanctioning people and their personal assets, not any businesses they operate. But U.S. officials, speaking on condition of anonymity, said there was no certainty European nations would be on board with sanctions that would cause real pain and be felt not only in Russia's economy but by U.S. and European interests too. Broader sanctions could cause collateral damage to companies that would be forced to sever ties with blacklisted firms. It was also unclear whether a Geneva meeting involving the United States, Russia and Ukraine would happen now, the U.S. officials said, as the Russians had begun setting preconditions, including that Ukraine could not use force to quell unrest in the east, and that all of Ukraine's regions, including pro-Russian areas, would have to be included in the delegation. DESIGNS ON EASTERN UKRAINE? Ukraine now faces a rash of rebellions in the east it says are inspired and directed by the Kremlin. Asked on ABC if Putin wants to seize eastern Ukraine, Power said his actions "give credence to the idea." Though Russians are insisting that is not what Moscow wants, she said, "Everything they're doing suggests the opposite." NATO described the appearance in eastern Ukraine of men with specialized Russian weapons and identical uniforms without insignia, as previously worn by Moscow's troops when they seized Crimea, as a "grave development." Power said the rebellion has "all the telltale signs of what we saw in Crimea: It's professional, it's coordinated, there's nothing grassroots-seeming about it. The forces are doing in each of the six or seven cities that they've been active in exactly the same thing." However, the U.S. officials who spoke on condition of anonymity said Russia's recent moves appeared to be less about grabbing territory than about destabilizing what Russia sees as an increasingly Western-centric government in Kiev. Republican Senator John McCain, a frequent critic of U.S. policy on Ukraine, said on CBS the Obama administration's failure to punish Russia over Crimea has only emboldened Putin. "The question is now, What do we do and what does he do?" McCain said on "Face the Nation." "It's obvious that he is encouraged by the fact that we sanctioned a few people and suspended - didn't even throw him out - of the G8." McCain repeated his calls for tougher sanctions and for giving Ukrainians light weapons so they can defend themselves. "They didn't fight in Crimea," he said. "But if he starts moving in further encroachment in this way into eastern Ukraine, they will fight." The United States on Friday imposed sanctions on a Crimea-based gas company, Chernomorneftegaz, effectively putting it off limits to Russia's state-controlled Gazprom, which was expected to bid for a stake in the company. The move, along with penalties on six Crimean separatists and a former Ukrainian official, is the third round of U.S. sanctions since the Ukraine crisis erupted. (Additional reporting by Sarah N. Lynch, Anna Yukhananov and Christian Lowe; Writing by Doina Chiacu; Editing by Jim Loney, Leslie Adler and Meredith Mazzilli)