Ukraine sanctions could be rolled back if Russia withdraws, U.S. says

New U.S. sanctions on the Russian energy, defence and financial sectors could be rolled back if Moscow withdrew its forces from Ukraine and established a buffer zone along the border among other conditions, a senior U.S. official says.

Russian and Ukrainian forces exchange prisoners, even as cease-fire violations recur

A pro-Russian rebel who is a prisoner-of-war walks in front of a bus as he is about to be exchanged north of Donetsk, eastern Ukraine, on Friday. (Marco Djurica/Reuters)

New U.S. sanctions on the Russian energy, defence and financial sectors could be rolled back if Moscow withdrew its forces from Ukraine and established a buffer zone along the border among other conditions, a senior U.S. official said.

The official spoke on condition of anonymity after the United States announced more sanctions against Russia on Friday, affecting oil and defence industries and further limiting the access of major Russian banks to U.S. debt and equity markets to punish Russia for its intervention in Ukraine.

Also Friday, the European Union said it would delay applying the EU-Ukraine free trade pact that was pivotal in starting the Ukrainian conflict. The deal now won't come into effect until the end of next year.

Members of the Ukrainian government forces, who are prisoners-of-war, sit in a bus as they wait to be exchanged, north of Donetsk on Friday. (Marko Djurica/Reuters)

In the meantime, Ukraine will continue to enjoy privileged access to the EU market until Jan. 1, 2016, Commissioner Karel De Gucht said. Russia had threatened to introduce import tariffs on Ukrainian goods if Kyiv proceeded with the planned trade deal from Nov. 1.

Russian President Vladimir Putin said the new sanctions against Russia were intended to disrupt peace efforts in eastern Ukraine and that Moscow was considering retaliatory measures.

The sanctions looked "a bit strange" in view of the peace drive and a cease-fire, he said.

"When the situation is moving towards a peaceful resolution, steps are taken which are aimed at disrupting of the peace process."

Putin added:

"We've long been convinced that sanctions as an instrument of foreign policy are inefficient and practically never bring about their desired result — even in relation to small countries. Of course a policy of sanctions inflicts certain damage, including to those who use them."

A member of the pro-Russian rebels who had been a prisoner-of-war (POW) hugs a friend after being exchanged, north of Donetsk on Friday. (Marko Djurica/Reuters)

Earlier, government and rebel forces exchanged dozens of prisoners captured during fighting in Ukraine as part of a ceasefire agreement sealed earlier this month.

The transfer took place outside the main rebel stronghold of Donetsk early Friday under the watch of international observers.

President Petro Poroshenko said 36 Ukrainian servicemen were released after negotiations. He said a further 21 soldiers were freed the day before.

Violations of cease-fire

Ukrainian forces handed over 31 pro-Russian rebels detained over the course of the five-month conflict.

A cease-fire between separatists and the Ukrainian military took effect last Friday but has already been serially violated. Shortly after the prisoner exchange, a volley of rocket fire was heard from central Donetsk.

The group of Ukrainian servicemen was driven away from the local security services headquarters around 1:30 a.m. local time and taken to a location several kilometres north of the city. At the spot, they were met by Ukrainian military officials, some of whom were armed.

The two sets of captives were brought out wearing handcuffs, which were removed as they were handed over. Prisoners were split up into small groups for the exchange.

Hundreds of prisoners are believed to be held by both sides, although no firm figure has been provided by either.

One representative apiece from the separatist rebels and the Ukrainian government checked people being freed against a list and crossed out names as they were being released.

Five months

"There is an ongoing process of talks. We are meeting each other's demands and fulfilling our promises," said Yuriy Tandit, who is serving as a negotiator for the government.

The conflict between pro-Russian rebels and the Ukrainian government has been raging for five months now, claiming more than 3,000 lives, according to the UN.

Ukraine and the West have accused Russia of propping up the insurgency in eastern Ukraine with recruits and weapons. Moscow has admitted that there were Russian volunteers fighting across the border but flatly denied sending them weapons or troops.

In Brussels, the European Union imposed a new round of sanctions on Russia for its actions in Ukraine, virtually shutting down long-term lending for several Russian weapons manufacturers as well as three energy companies including Rosneft, the country's largest oil producer. EU entities and individuals will now be barred from providing lending for more than 30 days.

With files from The Associated Press