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U.S. Says Russia Is Stoking Ukraine Conflict Before Talks

The U.S. urged its European allies
to support deeper sanctions against Russia and accused its
former Cold War foe of sending heavy weapons and other support
to separatists as peace talks struggled to inch forward.

President Barack Obama’s administration pressed European
Union ambassadors at a meeting yesterday to halt what American
officials called Russian President Vladimir Putin’s
destabilizing actions, according to three participants. The U.S.
may sanction Russia’s financial and defense industries — with
or without its European allies — and measures could be imposed
as soon as this week, U.S. officials said on condition of
anonymity.

“While Russia says it seeks peace, its actions do not
match its rhetoric,” the U.S. government said in a statement.
“We have no evidence that Russia’s support for the separatists
has ceased. In fact, we assess that Russia continues to provide
them with heavy weapons, other military equipment and financing
and continues to allow militants to enter Ukraine freely.”

Ukrainian forces are trying to encircle and wipe out
insurgents who retreated to the mainly Russian-speaking cities
of Luhansk and Donetsk and to shore up its 2,000 kilometer
(1,200 mile) eastern border. Tensions escalated this week after
Ukraine’s government said Russian forces may have shot down one
of its military airplanes, while its neighbor blamed Ukrainian
forces for shelling that killed one person in Russia.

Heavy Weapons

The yield on Ukraine’s April 2023 dollar bonds rose 5 basis
points, or 0.05 percentage point, to 8.44 percent at 12:50 p.m.
Russia’s Micex Index (PALMCEX) fell 0.6 percent to 1,474.05.

Officials from Ukraine, Russia and the Organization for
Security and Cooperation in Europe agreed to hold a video call
today with rebel representatives that should pave the way for
face-to-face talks, Germany’s government said yesterday.

Still, the U.S. State Department tried to ratchet up
pressure. In a statement, it said many of the self-proclaimed
leaders of the separatists “hail from Russia and have ties to
the Russian government.” It also said it was “confident”
Russia was mobilizing tanks, anti-aircraft systems, rocket
launchers and other armored vehicles to a site in southwest
Russia to help the separatists.

“We are concerned much of this equipment will be
transferred to separatists,” the State Department said. “We
are confident Russia has already delivered tanks and multiple
rocket launchers to them from this site.”

Plane Downed

It said Russia was moving forces back to its border with
Ukraine and that it had allowed officials from the self-proclaimed Donetsk People’s Republic to establish a recruiting
office in Moscow. Separatists are still holding as many as 150
mostly civilian hostages in Ukraine, including teachers and
journalists, according to the statement.

An An-26 transport plane was shot down in eastern Ukraine
yesterday by a “powerful weapon” not previously used by the
separatists, probably from inside Russia, Defense Minister
Valeriy Geletey told President Petro Poroshenko, according to
the president’s website.

It was probably struck either by an air-to-air missile from
a jet based at Russia’s Millerovo base or a surface-to-air
rocket from a mobile system, Andriy Lysenko, a Defense Ministry
spokesman, said in Kyiv yesterday. The government has
“undisputed proof” that Russia was involved, Interfax
reported, citing the head of Ukraine’s intelligence service,
Valentyn Nalyvaychenko.

Ukrainian forces are still searching for six people from
the aircraft, while two have been captured by pro-Russian
rebels, Lysenko said. Igor Konashenkov, a spokesman for Russia’s
Defense Ministry, couldn’t be reached for comment on his mobile
phone.

‘Wide-Scale Aggression’

“Ukraine, as never before, is on the brink of wide-scale
aggression from our neighbor,” Mykhaylo Koval, deputy head of
the National Defense and Security Council, said last night.

Separatists fired on a residential area in Luhansk
yesterday evening, destroying a cafe, a market and private
houses, the Interior Ministry in Kyiv said in a statement. The
city announced a three-day morning period after 17 civilians
died, including at least one child, and 73 were wounded during
the past three days, the mayor’s office said.

Four more people were killed and four were wounded in
Snezhnoe, Donetsk region, the local administration said in a
statement. The village was attacked by an unidentified plane
that was not from the Ukrainian military, which has not used its
aircraft since the An-26 was shot down, Interfax reported today,
citing Lysenko. Six Ukrainian soldiers also died and 13 were
wounded in the last 24 hours, IFX reported.

Anti-Russian ‘Hysteria’

Poroshenko spoke with German Chancellor Angela Merkel at
around midnight and agreed OSCE monitors would be placed at two
border checkpoints and drones may be used to observe the
frontier, his office said in a statement.

OSCE Chairperson-in-Office Didier Burkhalter also phoned
with Ukrainian Foreign Minister Pavlo Klimkin and Russian
Foreign Minister Sergei Lavrov, stressing the importance and
urgency of talks with leaders of “illegally armed groups in the
eastern region of Ukraine” to prepare the ground for cease-fire
efforts, the OSCE said in a statement on its website.

Russia said some OSCE delegations weren’t being
constructive and that the U.K. was pushing anti-Russian
“hysteria” in the organization. The Defense Ministry in Moscow
invited military attaches from 18 countries, including the U.S.
and Germany, to see the Russian-Ukrainian border in Rostov
region, RIA Novosti reported, citing Deputy Defense Minister
Anatoly Antonov.

EU Disunity

The EU has imposed asset freezes and visa bans on 72 people
and two companies connected with the destabilization of Ukraine
and Russia’s annexation of Crimea in March, measures that
advocates of stricter sanctions say are symbolic gestures.

The EU’s first opportunity to consider wider penalties will
be at a summit tomorrow. Objections by countries such as Italy,
Austria, Slovakia, France and Greece have frustrated moves
toward broader sanctions, which require unanimity.

Lysenko dismissed Russian claims that Ukraine’s military
fired the artillery round that killed one person in the Russian
region of Rostov last week. Ukraine also has proof that its
border guards were attacked from Russian territory and that
Russian helicopters and drones crossed over the border, he said.

“Pro-Russian militants used mortar fire and killed one
Russian citizen,” Lysenko said. “Now Russia is trying to
present the shooting as an attack from the Ukrainian army. Those
accusations are groundless.”

To contact the reporters on this story:
Daria Marchak in Kyiv at
dmarchak@bloomberg.net;
Daryna Krasnolutska in Kyiv at
dkrasnolutsk@bloomberg.net;
Jake Rudnitsky in Moscow at
jrudnitsky@bloomberg.net

To contact the editors responsible for this story:
Balazs Penz at
bpenz@bloomberg.net;
James M. Gomez at
jagomez@bloomberg.net
Michael Winfrey, Andrea Dudik