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US, Europe prepare tough new sanctions on Russia in case Ukraine ceasefire unravels entirely

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WASHINGTON — The United States and European governments have readied a new round of penalties against Russia targeting its energy and financial sectors as part of a sanctions-in-waiting strategy that officials hope will enable the West to respond immediately if Moscow-backed insurgents seize more territory in Ukraine.

The penalties could start with banning more Russian government officials and businessmen from traveling and doing business in the West, U.S. and European officials said. But they can climb dramatically to include new measures to crimp the country's all-important fuel exports, cut Russian banks off from international financial transactions and severely limit the capacity of Russian businesses to engage in lucrative business deals overseas.

The Americans and the Europeans are working off the same menu of contingency measures, the officials said, though there is no agreement yet on what level of response would be appropriate for each type of infraction.

Secretary of State told reporters this week that imposing additional sanctions on Russia "depends on what happens on the ground" and on President 's support for fully implementing a February cease-fire in Ukraine.

If violence stops and separatists can reach a political agreement with Ukraine's Western-backed government in Kiev, sanctions can be rolled back, he said. But, "if President Putin chooses to play a double game and continues to allow the separatists to press forward, then obviously we have a very big challenge ahead of us."

The European Union will extend its current penalties on Russia next week, though officials said there is no consensus among its 28 members on new measures.

The new strategy for possible additional sanctions reflects the lessons learned by U.S. and European officials over the last 16 months during which Russia occupied and annexed Ukraine's Crimean Peninsula and, Western nations say, fueled an insurgency within eastern Ukraine.

The combined U.S.-European response has hit Russia's economy hard. Combined with a drop in fuel prices, sanctions spurred a crash in the ruble and have forced the Kremlin to dig ever deeper into its cash reserves to keep the economy afloat.

But for all that pain, it has done little to sway Putin. The U.S. says his military continues to direct separatist and Russian forces in battlefield attacks. It has stepped up the level of equipment provided to insurgents and is now using drones and other advanced techniques in joint training.

On Thursday, State Department spokesman John Kirby expressed concerns about several attacks on Ukrainian positions beyond the truce line, saying "combined Russian-separatist forces" used heavy weapons banned by the cease-fire. "Russia bears direct responsibility for these aggressive actions," he told reporters, and warned of "increased costs" for Moscow if territory is seized.

Slowness was among the main flaws that hampered early U.S. and European efforts to counteract Putin, according to officials, who weren't authorized to talk about private sanctions deliberations publicly and demanded anonymity. After rebel offensives, sanctions often took weeks to coordinate. By the time they arrived, insurgent forces would be entrenched and Putin was prepared to accept the economic bullet, they said.

The new approach is geared around speed, officials said, with sanctions "locked and loaded" ahead of what could be a volatile summer.

Officials fear a renewed Russian-led offensive in eastern Ukraine, including the strategic port city of Mariupol, government-held parts of the Donetsk and Luhansk provinces, and the city of Kharkiv, Ukraine's second-largest.

The Obama administration has insisted on coordinating its response with Europe to maximize the economic effect. However, European Union political machinations often have stalled the process as member states object to measures that would hurt their economies. The new strategy seeks to streamline the process by getting states to agree ahead of time on acceptable targets.

The guiding principles of any future sanctions, officials said, are that they hurt Russia more than the U.S. or any individual European economy, be relatively easy to establish and prove sustainable and enforceable.

For smaller infractions, European officials have spoken of adding new names to a list of Russians cut off from visiting or doing business in the West.

American officials see that as too limited a response and are instead looking at steps such as hitting Russian subsidiaries overseas and new sectors like mining and engineering, or further restricting financing options for Russian businesses and cutting into an energy industry that is the backbone of the country's economy.

The energy measures could include restrictions on business related to natural gas exploration or equipment for drilling and transporting so-called "tight oil," which Russia wants to tap into to expand business in Asia at a time when European countries have reduced their purchases of Russian energy by 30 percent.

At the higher end of the spectrum for more serious violations, officials said, are more severe financial sanctions that include cutting some Russian banks off from the SWIFT system used by much of the world for international money transfers — a weapon previously deployed against Iran because of its disputed nuclear program.

However, officials on both sides of the Atlantic said they hoped to avoid the scenario of any new sanctions, expressing cautious optimism in a series of "working group" discussions involving Ukraine, Russia and separatist leaders. The West hopes the eastern areas will be content with greater autonomy within Ukraine and that violence will end.

PHOTO: FILE  - In this June 12, 2015, photo, Secretary of State John Kerry speaks to media as he is discharged from Massachusetts General Hospital in Boston. The U.S. and Europe have prepared a new round of penalties against Russia for delivering an immediate response if Russian-backed rebels push deeper into Ukraine. (AP Photo/Elise Amendola, File)
FILE - In this June 12, 2015, photo, Secretary of State John Kerry speaks to media as he is discharged from Massachusetts General Hospital in Boston. The U.S. and Europe have prepared a new round of penalties against Russia for delivering an immediate response if Russian-backed rebels push deeper into Ukraine. (AP Photo/Elise Amendola, File)

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