US threatens Russia with sanctions to make its economy bleed amid crisis in Ukraine

Washington threatens more sanctions across key financial sectors if Moscow tries to disrupt presidential election in Ukraine in nine days

PUBLISHED : Thursday, 15 May, 2014, 9:09pm
UPDATED : Friday, 16 May, 2014, 1:23am

The United States warned Russia yesterday of stepped-up Western sanctions to make its economy "bleed" if it disrupts a crucial presidential election in Ukraine in nine days.

Ukraine's interim leaders are battling to keep the country together for the May 25 vote in the face of a bloody insurrection in the east and a tense stand-off with former master Russia.

President Barack Obama has already drafted an executive order to impose sanctions across key sectors such as banking, energy, defence and mining, adding to punitive measures already imposed by Washington and Brussels.

"There are a lot of things we can do to create bleeding," a US official said, adding that the aim was "to use a scalpel rather than a hammer".

The warning came as Russia reported a sharp slowdown in economic growth in the first quarter that analysts attributed to fallout from the raging crisis in neighbouring Ukraine.

The state statistics agency said the Russian economy grew by 0.9 per cent between January and March compared to the same period last year.

The figure represented an improvement to an initial 0.8 per cent estimate, but a steep decline from the 2.0 per cent figure seen in the final quarter of last year.

However, the crisis has strengthened the popularity Russian President Vladimir Putin, who is firmly on course to win a new term in 2018 if he decides to run, an independent polling agency said yesterday.

A survey by the research group Levada found 81 per cent of respondents would be ready to vote for Putin if a presidential election took place now, up from 77 per cent in April and 68 per cent in January.

"His determination appeals to the majority of the electorate," said Alexei Grazhdankin, deputy head of Levada. "It is unlikely that by 2018 a politician will emerge who can compete with Putin for the presidential seat."

Western leaders see Ukraine's presidential vote on May 25 vote as crucial after Russia's much criticised annexation of Crimea in March.

Dozens have been killed in the southeast since the middle of last month as government troops battle rebels now occupying over a dozen towns and cities.

Fears are growing that Ukraine could tear apart after the separatists declared independence in the industrial regions of Donetsk and Lugansk following weekend referendums branded illegitimate by Kiev and the West.

Kiev hosted the first round of so-called national unity talks on Wednesday under an initiative by the Organisation for Security and Cooperation in Europe to try to resolve the crisis on Europe's eastern flank and allow the vote to go ahead.

But the pro-Moscow rebels fighting against Kiev's rule in the industrial east of the country were not at the table, despite Western calls for inclusive talks.

A US official said in London that Washington and its allies were working "to send a unified message to pro-Russian separatists and Moscow that any disruption of these elections will result in the next round of costs for Russia including sectoral sanctions".

Russia and Europe are also locked in a dispute over Ukraine's gas debt after Moscow threatened to turn off the taps if Kiev fails to pay a US$1.6 billion bill by June 3.

Additional reporting by Reuters