Ukraine Troops Advance as U.S. Warns Russia of Sanctions

 Ukrainian forces moved to flush separatists from their eastern holdouts as the top U.S. and U.K. diplomats vowed to punish Russia with industrywide sanctions if this month’s presidential election is undermined.

“If Russia or its proxies disrupt the elections,” the U.S. and its allies “will impose sectoral economic sanctions as a result,” U.S. Secretary of State John Kerry said in London yesterday after meeting his counterparts from the U.K., Italy, France and Germany. Separatists “are literally sowing mayhem,” seeking to “speak for everyone through the barrel of a gun.”

Discord over the election risks another round of escalation as the Kiev government and its U.S. and European Union allies blame Russia for the unrest in Ukraine’s easternmost regions. Russian calls to include rebels in national unity talks that began May 14 in the capital were rejected as the meetings opened without separatist leaders’ participation.

vdrussia_small2 Ukraine Troops Advance as U.S. Warns Russia of Sanctions

In eastern Ukraine, government troops eliminated two rebel bases near the towns of Slovyansk and Kramatorsk, acting President Oleksandr Turchynov said yesterday in parliament in Kiev. Militants vowed to expel the military from the region.

“The anti-terrorist operation can stop after weapons are surrendered and hostages released,” Turchynov said. “We’re conducting dialogue with those who’re prepared for conversation and cooperation. We’re working on changes to the constitution to expand powers to local self-government. At the same time, those who conduct war will receive an adequate answer.”

Micex Drop

With U.S. and EU leaders threatening more sanctions over the May 25 presidential ballot, Russian Foreign Minister Sergei Lavrov said it’s “ridiculous” to hold Russia responsible.

While Lavrov said May 14 that Ukraine’s slide into a civil war is making legitimate voting impossible, Kerry yesterday appealed to separatists to take part in the presidential ballot and engage in national dialogue as “the best way to de-escalate the situation.”

In Russia, the benchmark Micex Index ended a six-day rally as Ukraine stepped up efforts to dislodge separatists. The benchmark gauge fell 0.5 percent yesterday to 1,381.99, taking its drop since the start of President Vladimir Putin’s intervention in Crimea on March 1 to 4.3 percent. The ruble lost 0.1 percent to 34.76 versus the dollar, trimming its advance since Feb. 28 to 3.2 percent.

Ukraine’s hryvnia, which has lost 30 percent against the U.S. currency in 2014, strengthened for the first time in six days, gaining 0.9 percent, data compiled by Bloomberg show.

Death Toll

Dozens of people have been killed and more than 100 kidnapped in eastern Ukraine since separatist unrest flared after Russia’s annexation of Crimea peninsula in March.

The situation in the Donetsk region is worsening, with the sounds of gunfire constant in Slovyansk and the surrounding district, television service knocked out and civil transport not functioning, the governor’s office said in a statement yesterday. Tensions have engulfed 15 towns and cities in the region, according to the statement.

Armed rebels seized a truck carrying 1.5 million hryvnia ($127,000) near Yenakiyevo in the Donetsk region, according to Ukraine’s biggest lender, Privatbank. The central bank said it’s evacuating staff members and suspending operations in the region after attacks by separatists.

“When Ukrainians kill Ukrainians, I believe it’s as close to civil war as you can get,” Lavrov told Bloomberg Television in a May 14 interview in Moscow. “In the east and south of Ukraine, there is a war, a real war, with heavy weaponry used.”

‘Grating’ Comments

While events in Ukraine “bear the hallmarks of civil war,” Lavrov’s comments “are grating” given Russia’s role, Polish Defense Minister Tomasz Siemoniak said yesterday on Polish Radio’s Channel One. What’s going on in eastern Ukraine amounts to “special operations run by trained personnel,” he said.

Separatists in Luhansk and Donetsk, where unofficial ballots on breaking away from Kiev were held last weekend, have agreed to join forces to confront the central government. Rebels fighting for the self-proclaimed Donetsk People’s Republic said yesterday that they’ll “burn and wipe out” Ukrainian forces unless they withdraw from the region.

At the roundtable talks in Kiev, Prime Minister Arseniy Yatsenyuk said ending the crisis requires an international conference in Geneva, which Ukraine, Russia, the EU and the U.S. should attend. He said the election of a president this month will help stabilize the situation.

Russian Drill

Ukraine said it’s concerned about Russian military drills on election day. Russia said it’s holding an army competition, not exercises, in the Voronezh region close to Ukraine. It will run May 21-26 and involve planes, helicopters and tanks, according to Andrei Bobrun, head of the Western Military District’s press service.

While Putin promised last week to move soldiers back from Ukraine’s border, NATO says this hasn’t happened. Russia has no intention to send troops to eastern Ukraine, Lavrov said.

The U.S. and the EU have already penalized 98 people and 20 companies over Russia’s actions in Ukraine. Should it interfere in the planned election, Russia will face punitive measures targeting entire industries, which may include energy, banking, defense and mining, according to a U.S. official who asked not to be identified following diplomatic protocol.

The crisis is weighing on Russia, where first-quarter growth slowed to the weakest in a year as investment dried up. Gross domestic product advanced 0.9 percent in January-March from a year earlier after a 2 percent gain in the previous quarter, the Federal Statistics Service said yesterday.

‘Red Line’

The U.S. and its European allies agreed that industrywide sanctions would come next, the American official said.

“Russia’s attitude and behavior toward those elections will be the determining factor in whether we need to apply widening sanctions,” U.K. Foreign Secretary William Hague said at a news conference in London yesterday. “We can’t give and wouldn’t want to give an exact definition” of what Russia would do to destabilize and have sanctions applied, he said. “If we set a red line, Russia knows it can go up to that red line.”