US, EU set to slap new sanctions on Russia over Ukraine

Slavyansk, Ukraine: The United States and the European Union were on Monday readying fresh sanctions against Russia amid rising tensions over the kidnapping of international observers by pro-Russian militants in Ukraine.

The EU said top officials from its 28 member states would meet on Monday seeking to adopt an additional list of sanctions, likely to include asset freezes and travel bans.

European powers are working in tandem with the United States and the rest of the G7 group of leading economies which agreed over the weekend to impose new sanctions on Russia after Kiev accused Moscow of seeking to trigger a "third world war".

The G7 grouping includes EU heavyweights Britain, France, Germany and Italy as well as Canada and Japan.

A senior US official said the new sanctions will target Russia's defence industry as well as individuals and companies close to Russian President Vladimir Putin.

US President Barack Obama, on an Asian tour, stressed the need for a unified response to isolate Russia.

It is vital to avoid "falling into the trap of interpreting this as the US is trying to pull Ukraine out of Russia's orbit, circa 1950. Because that's not what this is about," he said.

"We're going to be in a stronger position to deter Mr Putin when he sees that the world is unified and the United States and Europe are unified, rather than this is just a US-Russian conflict," Obama added.

The US and EU have already targeted Putin's inner circle with visa and asset freezes and imposed sanctions on a key Russian bank.

However, former Russian tycoon Mikhail Khodorkovsky said they would have "no short-term effect" on the Russian economy.

'I cannot go home'

In Ukraine, pro-Russian militants presented a captured team of international observers as "prisoners of war" on Sunday, further raising the stakes in the crisis.

The self-styled mayor of rebel-held Slavyansk, which has become the epicentre of the crisis, led eight European members of an OSCE military inspection mission before scores of local and foreign journalists in the town hall.

With four armed rebels watching over him, a spokesman for the group, German officer Axel Schneider, said the team was in good health and stressed they were "OSCE officers with diplomatic status".

"I cannot go home of my own free will," he told reporters. One of the OSCE men, a Swede, was later released as he suffers from diabetes, a rebel spokeswoman told AFP.

OSCE chairman and Swiss President Didier Burkhalter condemned the kidnappings, saying his organisation was working "at all levels" to secure their release.

The local rebel leader, Vyacheslav Ponomaryov, earlier told reporters: "In our town, where a war situation is going on, any military personnel who don't have our permission are considered prisoners of war."

Pro-Russia militias this month occupied a string of towns and cities in eastern Ukraine, sparking a military response from the Ukrainian army, which is laying siege to Slavyansk.

The detention of the OSCE men sparked global outrage amid the worst East-West crisis since the end of the Cold War.

The international community is on edge, with one Western diplomat pointing to a possible imminent invasion by Russia, which has some 40,000 troops massed on the border with Ukraine.

France's Foreign Minister Laurent Fabius on Sunday warned of "incalculable consequences" if the situation in Ukraine deteriorates further.

Hostage display 'repugnant'

Germany's foreign minister also weighed in, saying Russia has a "duty to influence the separatists", and describing the public exhibition of the prisoners as "repugnant".

"This is a violation of all negotiating rules and norms that prevail in tense situations like this one," he added.

Russia has said it will take steps to secure the European inspectors' freedom but has blamed Kiev for their capture, stressing it was up to the host country to ensure their security.

The rebels have accused the team - which also included five Ukrainians, one of whom was later released - of being "NATO spies" and said they would only be freed as part of a prisoner swap. Ponomaryov claimed they were "not our hostages - they are our guests" and said he had "no direct contact with Moscow".

Ponomaryov added that the rebels were also holding three Ukrainian military officers captured overnight on what he said was a spying mission.

Russian television showed the Ukrainian men blindfolded, cuffed and in their underwear.

Recovering Ukrainian assets

In Donetsk, a regional industrial hub, dozens of separatists brandishing baseball bats overran the local TV station, according to an AFP reporter on the scene.

The Ukraine crisis escalated after Russia refused to recognise Kiev's new pro-EU government, which came to power in February after four months of street protests forced Kremlin-backed president Viktor Yanukovych to quit power.

While Obama has ruled out sending US or NATO forces into Ukraine, Washington has begun deploying 600 US troops to bolster NATO's defences in nearby eastern European states.

Ukrainian Prime Minister Arseniy Yatsenyuk has accused Russian warplanes of multiple incursions into Ukrainian airspace in an attempt to provoke "a third world war". On Tuesday Britain will host international talks aimed at recovering Ukrainian assets believed to have been looted under the regime of deposed Ukrainian president Viktor Yanukovych.

Yanukovych was ousted in February following a series of massive protests after he decided to scrap an agreement with the European Union in favour of closer ties with Russia.

He fled Ukraine for Russia and is now reportedly living in a country house outside Moscow.