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Ukraine tensions mount, sanctions in focus

Friday, April 25, 2014 - 02:39

April 25 - Sources tell Reuters that US President Obama is close to calling on EU leaders for more sanctions against Moscow - and S&P cuts Russia's foreign currency ratings. Amid a worsening situation in eastern Ukraine, Joanna Partridge asks what fresh sanctions could mean for the Kremlin.

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A stark message from Ukraine's Prime Minister. He says Russia wants to start World War Three. SOUNDBITE: UKRAINE PRIME MINISTER ARSENY YATSENIUK SAYING (Ukrainian): "It is clear that Russia's goal is, firstly, to wreck the elections in Ukraine so it won't have a legally-elected president. Secondly, to remove the pro-Western and pro-Ukrainian government. And thirdly, to occupy Ukraine militarily as well as politically." It was calm in the eastern Ukrainian town of Slaviansk after the recent clashes. But both Ukraine and Russia have been holding military exercises close to the border. The United States has added to the chorus of criticism of Russia. President Obama is expected to speak to several Europan leaders to try to nudge the EU towards fresh sanctions against Russia. Washington has grown impatient with what it describes as Moscow's failure to stick to the commitments made in Geneva in mid-April to de-escalate the situation in Ukraine. The longer the crisis continues, the more it hurts Russia's economy, says Patrick Armstrong from Armstrong Investment Managers. SOUNDBITE: Patrick Armstrong, Managing Partner, Armstrong Investment Managers, saying: "This crisis still has a way to go and I think there's going to be bigger implications. Russia's actually probably struggling already in funding Crimea, there's talking about the billions they promised there in infrastructure, that's going to have to be creatively accounted for given the other issues they have. So this isn't going to end very quickly and cleanly I don't think. Sanctions will happen for ... it's hard to tell the extent of the sanctions, but I think this is something to worry about and I think energy prices is probably the main concern for Europe." Ratings agency Standard & Poor's is also concerned. It cut Russia's foreign currency ratings, and said further downgrades were possible if there are more sanctions. This was the first major downgrade since Russia seized Crimea in March. Moscow called the move politically motivated, which S&P denies. Christian Esters from S&P says there were substantial capital outflows in the first three months of the year, due to geopolitical tensions. SOUNDBITE: Christian Esters, Senior Director, Standard & Poor's, saying (English): "More than 50 billion U.S. dollars, by comparison the average annual outflows over the past five years or so were $57 billion per year." Russia is anticipating more economic turbulence. Its central bank unexpectedly raised its key lending rate, due to inflationary risks linked to the weakening rouble. It already raised rates in March in response to the financial instability linked to the Ukraine crisis. Russia's already suffering a severe economic slowdown - fresh western sanctions may make the central bank's and the government's job even harder.