Energy sector sanctions are working so the Kremlin needs to choose between supporting its people or its policies in Ukraine, the U.S. State Department said.

The U.S. government in July imposed economic sanctions on Russian oil company Rosneft, gas producer Novatek and the financial arm of Russian energy company Gazprom. Russia relies heavily on energy exports to support its economy and U.S. State Department spokeswoman Jen Psaki said the economy is starting to suffer.

"I think with every week that passes, we're seeing more of a dire impact on the Russian economy," she said during her Tuesday press conference.

Russian President Vladimir Putin said he's working on retaliatory measures in response to Western sanctions.

"Of course, it should be done very carefully, so that domestic manufacturers are supported without detriment to consumers," he said.

Psaki said the goal of sanctions against Russia was to force the Kremlin's hands on its policies in Ukraine.

Russia is accused of supporting separatists in eastern Ukraine, who are suspected of playing a role in the July downing of a Malaysia Airlines passenger plane.

"President Putin has a choice to make," Psaki said. "Does he care about the economy and the middle class people and people living in Russia, or does he care about continuing to take aggressive actions as it relates to Ukraine?"