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U.S. And Allies May Target Key Russian Economic Sectors In New Sanctions

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Russian President Vladimir Putin  gestures, as listens to Swiss President and OSCE chairperson in office Didier Burkhalter during talks with the Organization for Security and Cooperation in Europe, OSCE, in Vienna, Austria, Tuesday, June 24, 2014. (AP Photo/Ronald Zak)
Russian President Vladimir Putin gestures, as listens to Swiss President and OSCE chairperson in office Didier Burkhalter during talks with the Organization for Security and Cooperation in Europe, OSCE, in Vienna, Austria, Tuesday, June 24, 2014. (AP Photo/Ronald Zak)

By JULIE PACE, MATTHEW LEE and BRADLEY KLAPPER -- The Associated Press

WASHINGTON (AP) — The United States and its European allies are finalizing a package of sanctions on Russia's key economic sectors that could be levied as early as this week, though the penalties might be delayed because of positive signals from Russian President Vladimir Putin, administration officials and others close to the decision-making said Tuesday.

Penalizing large swaths of the Russian economy, including its lucrative energy industry, would ratchet up the West's punishments against Moscow over its threatening moves in Ukraine. The U.S. and Europe have already sanctioned Russian individuals and entities, including some with close ties to Putin, but have so far stayed away from the broader penalties, in part because of concern from European countries that have close economic ties with Russia.

But with the crisis in Ukraine stretching on, a senior U.S. official said the U.S. and Europe are moving forward on "common sanctions options" that would affect several areas of the Russian economy. A Western diplomat said those options included Russia's energy industry, as well as Moscow's access to world financial markets.

The U.S. and Europe have been eyeing a European Council meeting in Brussels later this week as an opportunity to announce the coordinated sanctions. However, the enthusiasm for new sanctions, particularly among European leaders, appears to have waned in recent days as countries evaluate whether Putin plans to follow through on a series of promises that could ease the crisis, officials said.

The Russian leader acted Tuesday to rescind a parliamentary resolution authorizing him to use the Russian military in Ukraine. He also urged the new Ukrainian government to extend a weeklong cease-fire and called for talks between Ukraine and pro-Russian rebels that are widely believed to be backed by the Kremlin.

Putin's moves came one day after he talked by phone with President Barack Obama, their first known conversation in more than two weeks.

The threat of sector sanctions may be driving Putin to try to avoid penalties that could have a devastating impact on the already shaky Russian economy. However, there were no guarantees that Moscow would abide by the West's requests to pull back its troops from the Ukrainian border, stop arming separatists and negotiate seriously with Kiev.

Indeed, there were signs Tuesday of just how fragile the situation on the ground remains. Hours after Putin called for the cease-fire to be extended, pro-Moscow separatists shot down a Ukrainian military helicopter, killing nine servicemen.

At the State Department, spokeswoman Marie Harf said the situation entailed "two steps forward, one step back."

"We do see some positive signs on the ground," she told reporters. "The cease-fire, some separatists have accepted it, but the same day some other separatists shot down a helicopter. That President Putin says he'll go to the Duma, that's good, but then they continue the military buildup."

At the White House, spokesman Josh Earnest said that if Russia were to make positive changes, it would make additional sanctions "less likely."

Even if the U.S. and European Union decide not to levy sector sanctions this week, they could outline clearer intentions to ultimately take that step. In Europe, the 28 nations that form the EU may at least agree on the details of a package of sanctions so the penalties could be levied quickly, according to the Western diplomat, who like other officials insisted on anonymity because they were not authorized to discuss the internal deliberations by name.

An industry expert and legislative aides with knowledge of the sanctions said the penalties being readied by the U.S. are expected to focus on energy and aim to hurt the Russian economy without causing undue harm for U.S. industry — a shared concern among administration officials, business lobbies and members of Congress.

Although American officials have examined the possibility of unilateral action, they are still trying to do everything in concert with European countries. Officials said implementing restrictions on American companies exporting oil and gas exploration technology to Russia, for example, without similar rules for European competitors, risks harming major U.S. players in Russia's burgeoning energy sector such as ExxonMobil and Halliburton.

Several U.S. businesses are worried about the prospect of imminent sector sanctions on Russia and have held meetings with senior administration officials over the past 10 days.

Given their reliance on Moscow for fuel supplies and far deeper economic integration with Russia, European countries are unlikely to go along with any far-reaching energy sector action. So if the U.S. moves ahead on its own, the Obama administration fears Russia would be able to escape punishment by shifting business from U.S. firms to European energy giants such as BP, Total or Royal Dutch Shell.