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Obama escalates economic sanctions against Russia

Updated at 6:15 p.m.

WASHINGTON - President Obama announced Wednesday that the U.S. is levying deeper sanctions on Russia as the West grapples for a way to quell an insurgency in eastern Ukraine widely believed to be backed by Moscow.

The sanctions will target key areas of the Russian economy, including the defense industry. But officials say the penalties stop short of fully cutting off sectors of the Russian economy, a step the U.S. is holding in reserve in case Moscow launches a full-scale invasion of Ukraine or takes similarly provocative actions.

"These sanctions are significant but they are also targeted, designed to have the maximum impact on Russia while limiting any spillover effects on American companies or those of our allies," the president said. "What we are expecting is that the Russian leadership will see once again that its actions in Ukraine have consequences, including a weakening Russian economy and increasing diplomatic isolation."

He also pledged to continue supporting the right of self-determination for the Ukrainian people and praised the steps they have taken toward forming a new government.

The U.S. penalties come as officials in Europe weigh whether to levy their own tougher sanctions on Russia.

The officials insisted on anonymity because they were not authorized to discuss the penalties publicly by name ahead of the official announcement.

The U.S. had already placed sanctions on various Russian officials and businessmen in March. When those sanctions were announced, the president said in a statement that he signed an additional executive order in consultation with European allies that would give the U.S. the authority to impose sanctions on key sectors of the Russian economy. He said this was not a "preferred outcome" because it could impact the global economy.

This new round of sanctions is broad, targeting two major Russian financial institutions, Gazprombank OAO and VEB, and two Russian energy firms, OAO Novatek and Rosneft, by limiting their access to U.S. capital markets. The U.S. also sanctioned more Russian government officials and blocked the assets of several Russian arms firms that produce materials ranging from small arms and mortar shells to tanks.

Earlier this week, Ukrainian Defense Minister Valeriy Heletey said Russia may have been responsible for shooting down a Ukrainian military transport plane. Though rebels in conflict-wracked eastern Ukraine immediately claimed responsibility for downing the Antonov AN-26, Heletey said it was flying at an altitude too high to be reached with the weapons used by the separatist groups.

"Russia has continued to destabilize Ukraine and provide support for the separatists, despite its statements to the contrary," said Under Secretary for Terrorism and Financial Intelligence David S. Cohen.

The U.S. has discussed the new round of sanctions with European leaders, according to senior administration officials who called this move a "significant step" that will "exacerbate" the economic situation in Russia. The Russian ruble has already been greatly weakened recently in anticipation of economic sanctions.

U.S. officials emphasized that these sanctions were not what the U.S. or Ukraine had originally wanted. Ukrainian president Petro Poroshenko initially sought a bilateral cease-fire, but it was not agreed upon by separatist groups. A senior official said flows of heavy weapons into Ukraine and support for separatists from Russia has increased recently. Though Ukraine had previously asked for sanctions to be withheld, the official said the country has now "urged" the U.S. and European Union to pursue further sanctions.

Ukrainian government troops have been fighting for more than three months against separatists in eastern Ukraine.

The president also addressed several ongoing international situations in addition to the latest round of sanctions in Ukraine. He announced that while Iran has met its commitments under an interim agreement to roll back its nuclear program, there are still "significant gaps" that could cause negotiations to extend beyond the July 20 deadline for the interim deal. The president pledged to consult with Congress, Iran and the other international powers in negotiations to determine whether to extend the deadline.

Mr. Obama also reiterated his support for Israel's air campaign against Hamas as a defensive measure, but said that everyone is "heartbroken" by the violence and the loss of civilian lives in Gaza.

"The Israeli people and the Palestinian people don't want to live like this," Mr. Obama said. "They deserve to live in peace and security free from fear and that's why we're going ot continue to encourage diplomatic efforts to restore the cease fire."

Additionally, he praised Secretary of State John Kerry for helping to broker an internationally-audited presidential election in Afghanistan, which could lead to "the first democratic transfer of power in the history of that nation."