Pro-Russian separatists have kidnapped 8 military observers from the Organization for Security and Cooperation in Europe (OSCE), and say they will exchange them for prisoners being held by Ukraine.

The separatists claim that the OSCE observers are “NATO spies.” Vyacheslav Ponomaryov, de facto mayor of Slaviansk, said “They were soldiers on our territory without our permission, of course they are prisoners.”

The observer mission had been sent to Eastern Ukraine in March.

Reuters:

Ukraine’s state security service said the OSCE observers – part of a German-led military verification mission deployed since early March at Kiev’s request – were being held “in inhuman conditions” and that one needed medical help.

A spokeswoman for the Vienna-based organisation, of which Russia is a member, said the OSCE had been in contact with “all sides” since late on Friday but had had no direct contact with the observers.

The Russian foreign ministry said it was working to resolve the crisis, but blamed Kiev for failing to ensure the OSCE mission’s safety in “areas where the authorities do not control the situation and where a military operation against residents of their own country has been unleashed”.

Russia’s Komsomolskaya Pravda newspaper released a video interview with a man it identified as Ivan Strelkov, a militia leader in Slaviansk, accused by Ukraine’s security services of being an employee of Russian intelligence.

He suggested the monitors might have been using their diplomatic status “to carry out reconnaissance of the resistance positions, for the benefit of the Ukrainian army”.

It is standard practice for serving military officers to be seconded to OSCE missions.

Meanwhile, the G-7 announced it has agreed to further sanctions against Russia. No specifics were given but it is believed that they will target Putin cronies, banning travel and other restrictions:

In a joint statement, G7 leaders said Russia had not taken any concrete steps to implement an accord, signed earlier this month in Geneva, intended to rein in illegal armed groups.

“Instead, it has continued to escalate tensions by increasingly concerning rhetoric and ongoing threatening military maneuvers on Ukraine’s border,” it said.

“We have now agreed that we will move swiftly to impose additional sanctions on Russia.”

But it added: “We underscore that the door remains open to a diplomatic resolution of this crisis.”

Senior EU diplomats will meet on Monday to discuss the next steps and are expected to add 15 more names to a list of Russians subject to asset freezes and a travel ban.

Putin acknowledged for the first time this week that sanctions were causing difficulties for Russia, though he said the impact was not “critical”.

Standard & Poor’s cut Russia’s sovereign long-term debt rating on Friday, making it more expensive for the government to borrow money. That forced the central bank to raise its key interest rate to limit a fall in the rouble.

Russian banks have been moving funds out of foreign accounts in anticipation of sanctions.

Putin has broken off communications with the White House, while Defense Secretary Chuck Hagel can’t raise anyone in the Russian government. Russian troops on the border with Ukraine continue to “pulse” – drive toward the border and then stop. Russian fighter planes have violated Ukrainian air space. And the BBC is reporting that both sides in Eastern Ukraine think a Russian invasion “inevitable.”

Sanctions don’t appear to be having much of an effect on Putin’s plans — whatever they are.