Russia sets Ukraine agenda with diplomacy, threats

KIEV, Ukraine -- Russia called for a national unity deal in Ukraine even as it tightened its stranglehold over Crimea, a bold combination of diplomacy and escalating military pressure. The U.S. and European Union floundered for solutions -- while global markets panicked over the prospect of violent upheaval in the heart of Europe.

Fears grew in the Ukrainian capital and beyond that the Kremlin might carry out more land grabs in pro-Russian eastern Ukraine, adding urgency to Western efforts to defuse the crisis. U.S. Secretary of State John Kerry was heading to Kiev in an expression of support for Ukraine's sovereignty, and the EU threatened a raft of punitive measures as it called an emergency summit on Ukraine for Thursday.

But it was Russia that appeared to be driving the agenda.

Foreign Minister Sergey Lavrov said at a U.N. Human Rights Council session in Geneva that Ukraine should return to an agreement signed last month by pro-Russian President Viktor Yanukovych -- but not Moscow -- to hold early elections and surrender some powers. Yanukovych fled the country after sealing the pact with the opposition and foreign ministers of France, Germany and Poland.

"Instead of a promised national unity government," Lavrov said, "a government of the victors has been created."

Meanwhile, Ukrainian authorities said Russian troops had issued an ultimatum for two Ukrainian warships to surrender or be seized -- prompting the country's acting president to accuse Russia of "piracy."

Ukraine's corvette Ternopil and the command ship Slavutych were being blocked by four Russian navy ships in Sevastopol's harbor, a Ukrainian military spokesman said. Acting president Oleksandr Turchynov said commanders and crew were "ready to defend their ships. ... They are defending Ukraine."

Vladimir Anikin, a Russian defense ministry spokesman, dismissed the report of a Russian ultimatum as nonsense but refused to elaborate.

Warning of a "dangerous escalation," the Obama administration said Washington would hold Moscow directly accountable for any threat to Ukraine's navy.

Russia is "on the wrong side of history" in Ukraine, President Barack Obama said, adding that continued military action would be "a costly proposition for Russia." Speaking to reporters in the Oval Office, Obama said the U.S. was considering economic and diplomatic options that will isolate Russia, and called on Congress to work on an aid package for Ukraine.

Still, it was not clear what the West could do to make Russia back down. The clearest weapon at the disposal of the EU and U.S. appeared to be economic sanctions that would freeze Russian assets and pull the plug on multibillion-dollar deals with Russia. Late Monday, the EU threatened to freeze visa liberalization and economic cooperation talks and boycott the G-8 Summit in Russia if Moscow does not back down.

Already the economic fallout for Russia was being intensely felt: Russia's stock market dropped about 10 percent Monday and its currency fell to its lowest point ever against the dollar. But the economic consequences of antagonizing Russia were also acute for Western Europe: The EU relies heavily on Russian natural gas flowing through a network of Ukrainian and other pipelines.

By Monday, it was clear that Russia had complete operational control of Crimea.

Russian soldiers controlled all Crimean border posts, as well as all military facilities in the territory. Troops also controlled a ferry terminal in the Crimean city of Kerch, just 12 miles across the water from Russia. That intensified fears in Kiev that Moscow would send even more troops into the peninsula via that route.

Border guard spokesman Sergei Astakhov said the Russians were demanding that Ukrainian soldiers and guards transfer their allegiance to Crimea's new pro-Russian local government.

"The Russians are behaving very aggressively," he said. "They came in by breaking down doors, knocking out windows, cutting off every communication."

He said four Russian military ships, 13 helicopters and eight transport planes had arrived in Crimea in violation of agreements that permit Russia to keep its Black Sea fleet at the naval base in Sevastopol, but limits the deployment of additional forces at the base.

Ukraine's prime minister admitted his country had "no military options on the table" to reverse Russia's military moves into Crimea.

Prime Minister Arseniy Yatsenyuk appealed for outside help and said Crimea remained part of his country, as European foreign ministers held an emergency meeting on a joint response to Russia's military push into Crimea.

"Any attempt of Russia to grab Crimea will have no success at all. Give us some time," he said at a news conference with British Foreign Secretary William Hague.

But he added that "for today" there were "no military options on the table." He said his country was "urgently" asking for economic and political support from other countries.

The fears in the Ukrainian capital and beyond are that Russia might seek to expand its control by seizing other parts of Ukraine in the pro-Russian east of the country, the country's industrial powerhouse and agricultural breadbasket.

Hague said "the world cannot just allow this to happen." But he, like other Western diplomats, ruled out any military action. "The U.K is not discussing military options. Our concentration is on diplomatic and economic pressure."

Faced with fears of more Russian aggression, Ukraine's new government has moved to consolidate its authority, naming new regional governors in the pro-Russia east picked among the country's wealthy businessmen.

By putting influential oligarchs in control of key eastern provinces, Kiev appears to be hoping that Russian-leaning citizens will be more willing to remain within the Ukrainian fold.

In Geneva, Lavrov attempted to deflect international blame back onto the West.

"Those who are trying to interpret the situation as a sort of aggression and threatening us with sanctions and boycotts, these are the same partners who have been consistently and vigorously encouraging the political powers close to them to declare ultimatums and renounce dialogue," Lavrov said.

"We call upon them to show a responsibility and to set aside geopolitical calculations and put the interests of the Ukrainian people above all."

Lavrov justified the deployment of Russian troops in Ukraine as a necessary protection for his country's citizens living there. "This is a question of defending our citizens and compatriots, ensuring human rights, especially the right to life," Lavrov said.

Market reaction to the Russian seizure was furious Monday. On Wall Street, both the Dow Jones industrial average and the Nasdaq composite closed sharply down, while oil prices rose on fears that Russia, a major oil exporter, might face sanctions. In European trading, gold rose while the euro and stock markets fell.

The greatest impact was felt in Moscow, where the main RTS index was down 12 percent at 1,115 and the dollar spiked to an all-time high of 37 rubles. Russia's central bank hiked its main interest rate 1.5 percentage points Monday to 7 percent, trying to stem financial outflows.

Gazprom, the Russian energy giant, was also a big loser, its share price down 13 percent as investors worried about how it would get its gas to Europe if hostilities kept up, since much of it goes through Ukrainian pipelines.

Tension between Ukraine and Moscow rose sharply after Yanukovych was pushed out by a protest movement among people who wanted closer ties with the European Union. Yanukovych fled to Russia after more than 80 demonstrators were killed near Kiev's central square. He says he is still president.

Putin's confidence in his Ukraine strategy is underpinned by the knowledge that the nation's 46 million people have divided loyalties. While much of western Ukraine wants closer ties with the 28-nation European Union, its eastern and southern regions look to Russia for support.

Crimea is where Russia feels most at home in Ukraine: It is home to 2 million mostly Russian-speaking people and landlord for Russia's critical Black Sea Fleet at Sevastopol.

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Bennett reported from Kerch, Ukraine. Associated Press writers Lara Jakes in Washington, Yuras Karmanau in Kiev, Raf Casert and Juergen Baetz in Brussels, Frank Jordans in Berlin, John Heilprin in Geneva, Volodya Isachenkov and Laura Mills in Moscow and Danica Kirka in London contributed to this report.