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 The United States said its part of the new punitive measures,
which U.S. officials said would target "cronies" of Russian
President Vladimir Putin, could be unveiled as early as Monday
unless Russia moved fast to defuse the Ukraine crisis.
In a joint statement, the G7 leaders said Russia had not taken any
concrete steps to implement an accord, signed in Geneva, that was
intended to rein in illegal armed groups.
"Instead, it has continued to escalate tensions by increasingly
concerning rhetoric and ongoing threatening military maneuvers on
Ukraine's border," it said.
"We have now agreed that we will move swiftly to impose additional
sanctions on Russia ... We have committed to act urgently to
intensify targeted sanctions and measures to increase the costs of
Russia's actions."
But it added: "We underscore that the door remains open to a
diplomatic resolution of this crisis."
Russia denies it is to blame for the crisis in eastern Ukraine,
where armed pro-Russian separatists have taken control of about a
dozen officials buildings are defying the rule of the Western-backed
government in the capital, Kiev.
The Kremlin argues that the crisis began when a new leadership took
over in Kiev, in what Moscow calls a coup d'etat, and started
persecuting the Russian-speaking community in the east for wanting
closer ties with Russia.
The crisis has brought relations between Russia and the West to
their lowest level since the Cold War, and is increasingly turning
into a military stand-off.
Russia has massed troops and helicopters on the border with Ukraine
where it says they are conducting exercises, while NATO has deployed
extra forces in eastern Europe, saying they are needed to reassure
its allies.
OBSERVERS HELD
The international observers were being held in the eastern city of
Slaviansk, a flashpoint between the Moscow-backed separatists who
control the city, and Kiev's forces who are trying to squeeze them
out.
They were part of a German-led monitoring mission visiting the area
under the aegis of the Organization for Security and Cooperation in
Europe (OSCE), a Vienna-based body whose 57 member states include
Russia.
The group was made up of eight observers, including nationals from
Germany, Sweden, Denmark, Poland and the Czech Republic, along with
several Ukrainian army officers who were accompanying them, the OSCE
said.
On Saturday, the separatists invited journalists from Russian media
into the building where the observers are being held, and showed
military identification cards and military insignia they said were
taken from the detainees.
That, the separatists said, was proof that they were not observers
but were spying for NATO, according to reports in Russian media. It
is standard practice for serving military officers to be seconded to
OSCE missions.
"It is critical that we use all diplomatic channels to free this
team immediately and unhurt," German Defense Minister Ursula von der
Leyen said.
Russia's envoy to the OSCE said Moscow would take all steps to free
the observers, Russian news agencies reported.
SANCTIONS IMPACT
The G7 communiqué did not give details of what form the new
sanctions would take, but they appeared to mark a significant
ratcheting up of the visa bans and asset freezes already imposed on
individuals and entities associated with the Kremlin.
"We believe that these sanctions will have a significant impact,"
U.S. Deputy National Security Advisor for Strategic Communication
Ben Rhodes said.
Putin this week for the first time acknowledged that the sanctions
were causing difficulties for Russia, though he said the impact was
not "critical."
The ratings agency Standard & Poor's cut Russia's sovereign
long-term rating by one notch on Friday, effectively making it more
expensive for Russia's government to borrow money. That forced the
central bank to raise its key interest rate to limit a fall in the
value of the ruble.
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Russian banks have been moving funds out of foreign accounts in
anticipation of sanctions.
However, upping the pressure on Moscow carries risks for the West
too, and for Europe especially, because it depends on Russia for
about a quarter of its gas needs.
Russia has threatened to cut off Ukraine, which would have a
knock-on effect on customers further west because many of the
pipelines go through Ukrainian territory. Officials from the
European Union, Ukraine, and Ukraine's EU neighbor Slovakia, met in
Kiev on Saturday to discuss technical ways to reduce the impact of a
cut-off.
U.S. officials said the new sanctions on Russia will likely target
individuals or companies with influence in specific sectors of the
Russian economy such as energy and banking.
Sources familiar with the matter said the U.S. list is expected to
include "cronies" of Putin.
Meanwhile, the EU is expected to name 15 individuals to be placed
under sanctions and would focus on those it considers responsible
for the Ukraine unrest.
The sources said the one thing that might prevent the EU and the
United States from moving ahead with the sanctions on Monday would
be a sudden reversal of what they say are Russian-sponsored
separatist movements in eastern Ukraine.
"BLOODY CRIME"
Ukraine sent in troops to try to dislodge the separatists for the
first time on Thursday, killing up to five rebels around Slaviansk
in what it said was a response to the kidnapping and torture of a
politician found dead on Saturday.
Moscow said those actions violated the Geneva accord. Foreign
Minister Sergei Lavrov accused authorities in Kiev of waging "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," Lavrov said.
Russian forces on the border began military exercises on Thursday
and Ukraine said they had approached to within 1 km (0.6 mile) of
its border. It said it would treat any incursion as an invasion.
The Pentagon said that Russian aircraft had violated Ukraine's
border, without giving details. The Ukrainian defense ministry said
it was unable to confirm it.
Ukrainian special forces launched a second phase of their operation
on Friday by mounting a full blockade of Slaviansk, the rebels'
military stronghold, a presidential official said.
One of its military helicopters was hit by fire from a grenade
launcher and exploded while on the ground at an airport near the
city, the Defense Ministry said.
Pro-Western leaders in Kiev, who took power in February after
Moscow-ally President Viktor Yanukovich fled following mass protests
against him, say they fear Russia will try to take over eastern
Ukraine.
Russian troops seized Ukraine's Crimean peninsula on the Black Sea
soon after Yanukovich left for Russia in February. Moscow denies
interfering in eastern Ukraine, as it did in Crimea before admitting
its forces had gone in.
(Additional reporting by Maria Tsvetkova in Donetsk, Ukraine, Pavel
Polityuk in Kiev, Nigel Stephenson and Jason Bush in Moscow; writing
by Christian Lowe; editing by Robin Pomeroy)
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