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 "They (Kiev) are waging a war on their own people. This is a
bloody crime, and those who pushed the army to do that will pay, I
am sure, and will face justice," Russia's foreign minister, Sergei
Lavrov, told a meeting of diplomats.
Credit rating agency Standard & Poor's also provided a reminder of
the costs of the dispute to Moscow, as it cut the country's ratings,
forcing Russia's central bank to raise its key interest rate to
reverse a drop in the ruble.
Lavrov said Moscow was committed to implementing an agreement struck
in Geneva on April 17 between Ukraine, Russia, the United States and
the European Union to ease tensions in Ukraine and disarm illegal
groups but accused Washington of distorting it with "one-sided
demands".
The Defence Ministry said it was ready for "unbiased and
constructive" talks with the United States to stabilize the
situation.
U.S. President Barack Obama, who accuses Moscow of sending agents to
coordinate the unrest in the east, as it did before seizing
Ukraine's Crimea region in February, is planning to call allies in
Europe later in the day to nudge them towards tougher sanctions.
"The window to change course is closing," U.S. Secretary of State
John Kerry said late on Thursday, citing Obama's earlier comments
that Washington was ready to impose new sanctions, on top of those
imposed after Crimea was annexed.
Kerry said Russia was using propaganda to hide what it was trying to
do in eastern Ukraine — destabilize the region and undermine next
month's Ukrainian presidential elections — and denounced its
"threatening movement" of troops up to Ukraine's border.
"If Russia continues in this direction, it will not just be a grave
mistake, it will be an expensive mistake," Kerry said.
Russian President Vladimir Putin has scoffed at the sanctions so far
imposed, which have been limited to travel bans and overseas assets
freezes on individuals.
Ukraine said Russian troops conducting exercises had approached to
within 1 kilometer (1,100 yards) of the border and that aircraft had
also taken part in the maneuvers. It said it would treat any
incursion as an invasion.
Prime Minister Arseny Yatseniuk said Russia wanted to start World
War Three by occupying Ukraine "militarily and politically" and
creating a conflict that would spread to the rest of Europe.
Ukrainian special forces launched a second phase of their operation
in the east of the country on Friday by mounting a full blockade of
the rebel-held city of Slaviansk, an official on the presidential
staff said.
One of its military helicopters was hit by rocket fire and exploded
while on the ground at an airport near the city, the Defence
Ministry said.
Interior minister Arsen Avakov insisted every care was being taken
to avoid non-combatant casualties, after Moscow warned it may act if
Kiev used the army against civilians.
German foreign minister Frank-Walter Steinmeier meanwhile suggested
that the United States, the EU and Russia should make a joint
high-level trip to hotspots in Ukraine with local officials to
signal political backing for the Geneva agreement.
A German government spokesman told reporters on Friday that Russia
had done nothing to implement the agreement, and Chancellor Angela
Merkel had called Putin to urge action.
During that call, Putin called for urgent talks between Russia, the
EU and Ukraine on Russian gas supplies to Europe, which are now
under threat over the crisis in Ukraine, through which much of the
gas is piped.
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ODESSA CLASH
Seven people were injured overnight at a pro-Ukrainian checkpoint
near the Black Sea port of Odessa when an explosive device blew up,
police said on Friday.
Residents in the town have built several such checkpoints near the
town aimed at stopping pro-Russian separatists entering from
Moldova's breakaway territory of Transdniestria.
Interfax news agency quoted witnesses as saying a bomb was thrown at
the checkpoint from a passing car, though this was not confirmed by
police.
Transdniestria, home to Russian peacekeepers and Russian troops
guarding a Soviet-era arms stock, declared independence in the early
1990s.
NATO warned last month of a possible Russian military grab for
Transdniestria following its annexation of Crimea.
Ukrainian forces killed up to five pro-Moscow rebels on Thursday as
they closed in on the separatists' military stronghold in the east,
and Russia launched army exercises near the border in response,
raising fears its troops would invade.
The Ukrainian offensive amounts to the first time Kiev's troops have
used lethal force to recapture territory from rebels who have seized
swathes of eastern Ukraine since April 6 and proclaimed an
independent "People's Republic of Donetsk".
The Kremlin, which says it has the right to invade its neighbor to
protect Russian speakers, has built up forces — estimated by NATO at
up to 40,000 troops — on Ukraine's border.
ECONOMIC DAMAGE
Though the direct financial impact of sanctions has been limited,
Russia's economy is being damaged by the crisis.
Central bank data released earlier this month showed an estimated
$63.7 billion in net capital outflows in the first three months of
2014, the same as for the whole of 2013. The World Bank has said
this year's total could reach $150 billion.
S&P cut Russia's foreign currency sovereign ratings to reflect the
risk of further outflows, hitting Moscow stocks and weakening the
ruble.
Russia's central bank then raised its key interest rate by 50 basis
points to 7.5 percent to address the currency weakness, which it
said was raising inflation expectations.
Ukraine, a former Soviet republic, slid into unrest late last year
when Moscow-backed President Viktor Yanukovich rejected a pact to
build closer ties with Europe. Protesters took over central Kiev and
he fled in February. Days later, Russian troops seized control of
Crimea.
(Additional reporting by Alexei Anishchuk, Lidia Kelly and Oksana
Kobzeva in Moscow, Alastair Macdonald and Pavel Polityuk in Kiev,
Arshad Mohammed in Washington, and Erik Kirschbaum in Berlin;
writing by Will Waterman; editing by Giles Elgood)
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