By Steve Holland and Jeff Mason
WASHINGTON (Reuters) - U.S. President Barack Obama and German Chancellor Angela Merkel warned Russia on Friday it will face additional sanctions against key sectors of its economy if Moscow disrupts Ukraine's plan to hold elections on May 25.
The two leaders linked the threat to the election when they addressed a joint news conference in the White House Rose Garden after Oval Office talks dominated by the situation in Ukraine.
Obama and Merkel said they were united in vowing to move to the tougher sanctions but made clear there were still negotiations to determine how to structure the sanctions should they be necessary.
The election is to choose a successor to President Viktor Yanukovitch, the pro-Russian leader who resigned in the face of unrelenting protests and whose ouster has provoked the worst East-West crisis since the Cold War.
In recent weeks pro-Russian separatists have stirred turmoil in eastern Ukraine in what the West sees as an attempt by Russian President Vladimir Putin to invite Russian intervention, much as occurred in Moscow's seizure of Crimea in March.
U.S. officials said a next round of sanctions could affect vital parts of the Russian economy such as energy, defense, financial services and engineering.
"If, in fact, we see the disruptions and the destabilization continuing so severely that it impedes elections on May 25th, we will not have a choice but to move forward with additional, more severe sanctions," Obama said.
"The next step is going to be a broader-based sectoral sanctions regime," he said.
The United States and European allies have been carefully watching the movements of 40,000 Russian troops massed on Ukraine's eastern border and the takeover of buildings in cities in eastern Ukraine by armed pro-Russian militants.
They have warned that an outright invasion would trigger broad, damaging economic sanctions.
ENERGY AND BANKING NEXT?
Obama and Merkel said they were determined the elections would go off peacefully and as scheduled so Ukraine could begin rebuilding its economy.
"The 25th of May is not all that far away," said Merkel. "Should it not be possible to stabilize the situation further, further sanctions will be unavoidable."
The United States and the European Union have already imposed several rounds of sanctions on specific Russians, including some on members of Putin's inner circle, and several companies.
Moscow thus far has largely shrugged off the penalties, although Obama said they were a factor in a decline in the Russian stock market and value of the ruble. The aim was not to punish Russia but to change its behavior, Obama said.
Energy and banking sectors are two of the most likely areas to be targeted if sanctions are widened. Europeans are concerned that going after Russia's energy market could hurt European economies that are dependent on its natural gas.
After her White House visit, Merkel said in remarks at the U.S. Chamber of Commerce that European policymakers would want to ensure a mix of sanctions that would spread the burden across member states.
"We have to make sure that the impact is spread fairly," she said.
Obama and Merkel were vague on how far the new round of sanctions might go if they were imposed.
"The idea that you're going to turn off the tap on all Russian oil or natural gas exports, I think, is unrealistic," said Obama. "But there are a range of approaches that can be taken not only in the energy sector but in the arms sector, the finance sector, in terms of lines of credit for trade - all (sectors) that have a significant impact on Russia."
Merkel said it could take time to wean Europeans off Russian natural gas. It was important to "look ahead in the medium term to what we can do in order to promote an energy union in the European Union," particularly assessing dependencies in the next 10 to 15 years, she said.
Obama's Republican opponents made clear they feel he needs to be more forceful with Russia.
"I am deeply concerned that the administration continues to be so tepid and hesitant in using impactful sanctions even though they are fully aware of the aggressive destabilization Russia is causing in Ukraine," said Republican Senator Bob Corker.
Obama called on Russia to persuade pro-Russian military groups in Ukraine to stand down and said it was disgraceful that the militias were holding international observers.
He said the Russian assertion of a spontaneous uprising by pro-Russian activists in eastern Ukraine was belied by the use on Friday of surface-to-air missiles that brought down two of Ukraine's military helicopters.
"It is obvious to the world that these Russian-backed groups are not peaceful protesters," Obama said. "They are heavily armed militants."
(Editing by Prudence Crowther and Lisa Shumaker)