U.S. imposes toughest sanctions yet on Russia over Ukraine

By Anna Yukhananov and Steve Holland

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WASHINGTON (Reuters) - U.S. President Barack Obama on Wednesday announced the most wide-ranging sanctions yet on the Russian economy, targeting key institutions including Gazprombank and Rosneft Oil Co, as well as other energy and defense companies.

Washington has steadily escalated its financial sanctions on Russia over what it views as Moscow's interference in its neighbor Ukraine and its annexation of the Crimea region. Obama said the United States could impose further sanctions if Russia did not take concrete steps to ease the conflict.

The targeted companies also include Russia's second-largest gas producer, Novatek, Vnesheconombank, or VEB, a state-owned bank that acts as payment agent for the Russian government, and eight arms firms.

The U.S. Treasury Department, which posted the sanctions on its website, said the measures effectively closed medium- and long-term dollar funding to the two banks and energy companies. But the sanctions did not freeze those four companies' assets.

The sanctions stopped short of targeting Russia's Gazprom, the world's largest natural gas producer and provider of much of Europe's energy supplies. Gazprombank is 36 percent-owned by Gazprom.

"These sanctions are significant, but they are also targeted, designed to have the maximum impact on Russia while limiting any spillover impact on American companies or those of our allies," Obama told reporters.

View galleryPresident Barack Obama speaks about foreign policy …
President Barack Obama speaks about foreign policy and escalating sanctions against Russia in respon …
The new measures were announced on the same day that European Union leaders met in Brussels and agreed to expand their own sanctions on Russia.

The new U.S. sanctions also include Feodosiya Enterprises, a shipping facility in Crimea, and senior Russian officials, several of whom had already been targeted by the European Union.

The affected senior officials included the deputy head of the State Duma, or parliament, the minister of the Crimea, a commander of the Russian intelligence agency FSB, and a Ukrainian separatist leader.

"We have emphasized our preference to resolve this issue diplomatically," Obama said. "We have to see concrete actions, not just words, that Russia in fact is committed to trying to end this conflict."

He said Russia had continued to support separatists in east Ukraine, sending fighters and weapons across the border.

RUNNING OUT OF PATIENCE

Obama in recent weeks has repeatedly threatened new sanctions, and appears to have run out of patience as fighting continued to rage in eastern Ukraine.

The new sanctions were unlikely to please Republican lawmakers, many of whom have been calling for the imposition of sanctions on entire Russian industries, rather than specific companies, as the best way to control Russian President Vladimir Putin.

Washington said on Wednesday that up to 12,000 Russian forces were back on the border with Ukraine and that weaponry was crossing over to pro-Russian separatists.

"These are combat forces," Pentagon spokesman Colonel Steve Warren told reporters. The increase in the Russian presence occurred several weeks after Moscow had drawn down its forces in the area to about 1,000 troops.

Rosneft, Russia's largest oil company, had no immediate comment. Morgan Stanley, which is selling the majority of its global physical oil trading operations to Rosneft, declined to comment.

For more details on the sanctions, see http://1.usa.gov/1tSqqVG.

(Reporting by Anna Yukhananov, Steve Holland and Jeff Mason; Additional reporting by Phil Stewart and Patricia Zengerle in Washington, Adrian Croft in Brussels and Josephine Mason in New York; Editing by Peter Cooney)