US and EU prepare to strike Russian banks, energy firms

“Everything that we’ve seen in the last 48 hours from Russian provocateurs and agents operating in eastern Ukraine tells us that they’ve been sent there determined to create chaos … These efforts are as ham-handed as they are transparent,” he said.

“No one should be fooled, and believe me, no one is fooled by what could potentially be a contrived pretext for military intervention just as we saw in Crimea.”

“The United States and our allies [the EU] will not hesitate to use 21st-century tools to hold Russia accountable for 19th-century behaviour,” he noted, adding: “tough new sanctions on those orchestrating this action and on key sectors of the Russian economy, in energy, banking, mining – they’re all on the table.”

In Brussels, the European Commission will on Wednesday brief EU countries’ ambassadors on preparations for what the Union calls “stage three" sanctions.

EUobserver understands the draft measures designate curbs on Russian banks and financial services firms, trade in certain commodities, bans on EU companies’ services for Russian oil and gas corporations, and a potential arms embargo.

The oil and gas sector sanctions could cover transfer of technology, investments in new exploration and infrastructure, and peripheral services such as insurance or logistics, but not an Iran-type ban on EU imports of oil and gas.

The EU is also preparing to blacklist more Russian officials from a draft list of over 100 people, 33 of whom were already put under a visa ban and asset freeze in March.

Kerry’s warning comes ahead of his meeting with Russian FM Sergei Lavrov, Ukraine’s acting foreign minister, and EU foreign affairs chief Catherine Ashton next week.

But some diplomats fear the Russian invasion could begin before the weekend.

The US ambassador to the OSCE, a multilateral body in Vienna, Daniel Baer, in a statement published on Tuesday, said elite Russian army units and airforce assets on Ukraine’s border are ready to “conduct short-notice, sustained, offensive military operations into Ukraine” with “quick-strike capability and air support to potential ground operations”.

A Kiev-based diplomat from one EU country told EUobserver: “Russia is getting ready to occupy eastern and southern Ukraine, cutting it off from the sea, and securing key Ukrainian arms industry facilities which service its own military.”

If Russia escalates, the US is ready to impose sanctions immediately on the basis of an existing White House “executive order”.

EU foreign ministers are meeting in Luxembourg on Monday. But they are playing catch-up because EU sanctions proposals are unlikely to be finalised before the middle of next week.

The options paper is being drafted by commission line departments, primarily DG energy and DG trade, and co-ordinated by the commission’s secretary general, veteran Irish official Catherine Day.

It is taking time because it includes impact assessments on potential Russian retaliations, including “asymmetric” retaliations along the lines of its recent ban on EU pork, as well as on “burden sharing” of the impact among EU countries.

It is concerned that increased EU-Russia tensions could see world oil prices spike, putting more money in Russia’s war chest.

But EU diplomats say the slow pace is also linked to political signals from leading EU countries, including France, Italy, Germany, and Spain, on how far Europe is prepared to go.

For his part, German foreign minister Frank-Walter Steinmeier, the most senior member of the centre-left SPD party in Chancellor Angela Merkel’s coalition, caused upset in Berlin by saying the EU was wrong to make Ukraine choose between closer ties with the West and membership in Russia’s “Eurasian Union”.

"That is a very problematic remark ... it was Russia and not the EU that forced Ukraine into such a choice," Andreas Schockenhoff, a Russia specialist in Merkel’s centre-right CDU party, told Reuters on Tuesday.

"Just because Russia categorically insists that Ukraine must never become a member of Nato, we shouldn't have to accommodate this," he added.