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G-7 warns Russia of more sanctions if Ukraine crisis escalates

U.S. President Barack Obama and major industrialized allies warned Russia on Monday it faces damaging economic sanctions if President Vladimir Putin takes further action to destabilize Ukraine following the seizure of Crimea.

Leaders of the Group of Seven nations, meeting without Russia, agreed to hold their own summit this year instead of attending a planned G8 meeting in the Russian Olympic venue of Sochi, along the Black Sea coast from Crimea, and to suspend their participation in the G8 until Russia changes course.

(Read more: Russia sanctions: Who's losing out so far)

A unit claiming to Cossack and other citizen pro-Russian volunteers arrive to take up position outside a Ukrainian miltary base where heavliy-armed unidentifed soldiers have surrounded Ukrainian soldiers inside as Russian flag flies behind in Crimea on March 3, 2014 in Perevalne, Ukraine.
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A unit claiming to Cossack and other citizen pro-Russian volunteers arrive to take up position outside a Ukrainian miltary base where heavliy-armed unidentifed soldiers have surrounded Ukrainian soldiers inside as Russian flag flies behind in Crimea on March 3, 2014 in Perevalne, Ukraine.

On a day when Kiev ordered its remaining troops to withdraw from Crimea and Russian forces captured a Ukrainian marine base and a landing ship in the region, leaders of the United States, Germany, France, Britain, Italy, Japan and Canada condemned what they called "Russia's illegal attempt to annex Crimea in contravention of international law".

They also agreed their energy ministers would work together to reduce dependence on Russian oil and gas and increase energy security.

"We remain ready to intensify actions including coordinated sectoral sanctions that will have an increasingly significant impact on the Russian economy, if Russia continues to escalate this situation," they said in a joint statement.

The G7 leaders, who met on the sidelines of a nuclear security summit in The Hague, said they would convene again in Brussels in early June, the first time since Russia joined the G8 in 1998 that it will have been shut out of the annual summit of industrialised democracies.

They also urged the International Monetary Fund to reach a rapid agreement with Ukraine to unlock urgently needed financial aid for the country's shattered economy.

Obama, who has imposed tougher sanctions on Moscow than European leaders over its takeover of the strategic Crimean peninsula, told reporters: "Europe and America are united in our support of the Ukrainian government and the Ukrainian people".

(Read more: Gartman: Here's how you disarm Russian economy)

"We're united in imposing a cost on Russia for its actions so far," he said of the visa bans and asset freezes slapped on senior Russian and Crimean officials.

Russian Foreign Minister Sergei Lavrov played down the G8 snub.

"If our Western partners believe the format has exhausted itself, we don't cling to this format. We don't believe it will be a big problem if it doesn't convene," he told reporters.

Resistance ended

In Washington, both Republicans and Obama's fellow Democrats said they were disappointed the G7 had not gone further.

In the Senate, which is considering an aid package to Ukraine this week, lawmakers said Russia should be barred permanently, not temporarily, from the G8.

A State Department spokeswoman highlighted the economic damage Russia has already suffered due to its action in Crimea, a Russian-majority region, after the fall of Ukraine's pro-Russian president to months of mass protests.

"The Russian stock market's down 20 percent this year already. That's the worst performing index in the world," spokeswoman Maria Harf told reporters. "That's $75 billion of market value wiped away, due in large part to the power and reach of our sanctions.

(Read more: Putin ally: Sanctions on his bank have backfired)

"The Russian currency is near an all-time low as investors have lost confidence in the economy and fled into dollars."

Earlier on Monday, Russian troops forced their way into a Ukrainian marine base in the port of Feodosia, overrunning one of the last remaining symbols of resistance. They later stormed and captured a Ukrainian landing ship, firing warning shots and stun grenades. No casualties were reported in either incident.

In Kiev, acting president Oleksander Turchinov told parliament the remaining Ukrainian troops and their families would be pulled out of Crimea in the face of "threats to the lives and health of our service personnel".

That effectively ends any Ukrainian resistance, less than a month since Putin claimed Russia's right to intervene militarily on its neighbour's territory.

White House officials accompanying Obama expressed concern at what they said was a Russian troop build-up near Ukraine and warned that any further military intervention would trigger wider sanctions than the measures taken so far.

One U.S. official said Moscow had massed some 20,000 soldiers near the border. Russian intervention in eastern or southern Ukraine would be the clearest trigger for additional sanctions, as would violence in Crimea, another official said.

NATO also fears Putin may have designs on Transdniestria, a part of another former Soviet republic, Moldova.

Russia has said it is complying with international agreements on troop movements and has no plans to invade.

(Read more: Russian troops seize Ukrainian naval base)

Russia-Ukraine talks

In what has become the biggest East-West confrontation since the Cold War, the United States and the European Union have imposed personal sanctions on some of Putin's closest political and business allies. But they have held back so far from measures designed to hit Russia's wider economy.

Obama also discussed the crisis at a meeting in The Hague with Chinese President Xi Jinping, who has voiced support for Ukraine's sovereignty but refrained from criticising Russia.

The West wants Beijing's diplomatic support in an effort to restrain Putin but while Xi called for a political solution, he did not harden China's position towards Moscow.

Russia formally annexed Crimea on March 21, five days after newly-installed pro-Moscow regional leaders held a referendum that yielded an overwhelming vote to join Russia. Kiev and the West denounced the annexation as illegal.

In one sign of a possible easing of tension, Lavrov agreed to hold a first meeting with his Ukrainian counterpart, Andriy Deshchytsya, on the sidelines of the nuclear security summit.

The first 50 out of 100 observers dispatched by the pan-European OSCE security watchdog arrived in Ukraine on Monday to monitor potential trouble spots and defuse tensions. Russia relented late last week and agreed on a mandate after prolonged wrangling, but the monitors will not be allowed to enter Crimea.

(Read more: Why sanctions and S&P may spoil Russia's Crimea party)

Further costs

Western officials are now focused less on persuading Putin to relinquish Crimea - a goal that seems beyond reach - than on deterring him from seizing other parts of Ukraine, which was under Moscow's control within the Soviet Union until its break-up in 1991.

Persuading Europeans to sign on to tougher sanctions could be difficult. The EU does 10 times as much trade with Russia as the United States, and is the biggest customer for Russian oil and gas. The EU's 28 members include countries with widely varying relationships to Moscow.

But German Chancellor Angela Merkel, the EU's most powerful leader, has taken a tough line with Putin and supported EU moves to reduce the bloc's long-term dependence on Russian energy.

Despite the disruption to East-West relations, Washington wants other diplomatic business with Moscow to continue. U.S. Secretary of State John Kerry held talks with Lavrov after meeting the head of the Organisation for the Prohibition of Chemical Weapons, overseeing the destruction of Syria's toxic stockpile in action sponsored jointly by Washington and Moscow.

(Read more: Ukraine's battered economy)

Russia hit back symbolically at Canada, announcing personal sanctions against 13 Canadian officials in retaliation for Ottawa's role in Western sanctions so far. Moscow has already taken similar measures against senior U.S. Congress members but not yet European officials.

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