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The escalating Ukraine crisis rocked global financial markets Monday, driving up oil prices significantly and sending investors rushing into perceived safe-haven assets such as the yen, while they cut their exposure to stocks.
In European trading, Russian markets saw the heaviest losses after Moscow authorized an increase in the number of troops present in Ukraine's Crimea region. The Russian ruble hit a record low against the dollar and euro, prompting the Bank of Russia to raise interest rates Monday. The benchmark Micex stock index slumped over 11%, with construction firm Mostotrest OAO and metals and mining company Mechel OAO leading the falls, both dropping well over 20%. Gazprom, which has a large weighting on the index, was down 14% while Sberbank was off 18%.
"The first risks investors are getting out of are Ukrainian and Russian risks," said Paul Lambert, head of currencies at Insight Investment in London, which manages around $450 billion of assets.
In Ukraine itself, the yield on its 10-year dollar-denominated bond was at 10.33%, having earlier leapt more than a percentage point from Friday's close to 10.53%. The yield on the dollar-denominated Ukrainian bond maturing in 2014 meanwhile surged by 17 percentage points to 43%, according to Tradeweb. Bond prices and yields move in opposite directions. Ukraine's currency, the hryvnia remains extremely weak and was most recently quoted at 10 against the dollar, around 22% weaker than where it started the year.
"This uncertainty isn't likely to dissipate soon," said Rob Drijkoningen, co-head of emerging market debt at Neuberger Berman.
"Ukraine faces some important economic problems—lack of growth, an overvalued currency, and dwindling foreign-exchange reserves—but given the latest developments, the new government's attention has been focused on dealing with Russia rather than fixing imbalances," added Mr. Drijkoningen.
We, the leaders of Canada, France, Germany, Italy, Japan, the United Kingdom and the United States and the President of the European Council and President of the European Commission, join together today to condemn the Russian Federation’s clear violation of the sovereignty and territorial integrity of Ukraine, in contravention of Russia’s obligations under the UN Charter and its 1997 basing agreement with Ukraine. We call on Russia to address any ongoing security or human rights concerns that it has with Ukraine through direct negotiations, and/or via international observation or mediation under the auspices of the UN or the Organization for Security and Cooperation in Europe. We stand ready to assist with these efforts.We also call on all parties concerned to behave with the greatest extent of self-restraint and responsibility, and to decrease the tensions.We note that Russia’s actions in Ukraine also contravene the principles and values on which the G-7 and the G-8 operate. As such, we have decided for the time being to suspend our participation in activities associated with the preparation of the scheduled G-8 Summit in Sochi in June, until the environment comes back where the G-8 is able to have meaningful discussion.We are united in supporting Ukraine’s sovereignty and territorial integrity, and its right to choose its own future. We commit ourselves to support Ukraine in its efforts to restore unity, stability, and political and economic health to the country. To that end, we will support Ukraine’s work with the International Monetary Fund to negotiate a new program and to implement needed reforms. IMF support will be critical in unlocking additional assistance from the World Bank, other international financial institutions, the EU, and bilateral sources.
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In response to Ms Merkel's concern regarding the developments in Crimea and Ukraine as a whole, Vladimir Putin drew the Federal Chancellor's attention to the unrelenting threat of violence by ultra-nationalist forces, endangering the lives and legitimate interests of Russian citizens and the entire Russian-speaking population. It was stressed that the measures being taken by Russia correspond fully to the extraordinary current situation.
Mr Putin and Ms Merkel agreed to continue consultations both in the bilateral format (through the two nations' Foreign Ministries) and multilaterally to promote the stabilization of the situation in Ukraine.
"A 2006 cable under the name of Kiev Deputy Chief of Mission Sheila Gwaltney, who as it happens is now the highest ranking diplomat at the U.S. embassy in Moscow following the departure of Amb. Michael McFaul, warns of a possible Russian threat to Crimea – Ukraine’s 'soft underbelly,'" writes Keating.
From the cable:
Discussions with a wide range of contacts in Crimea November 20-22 and officials in Kyiv discounted recent speculation that a return of pro-Russian separatism in Crimea, which posed a real threat to Ukrainian territorial integrity in 1994-95, could be in the cards. However, nearly all contended that pro-Russian forces in Crimea, acting with funding and direction from Moscow, have systematically attempted to increase communal tensions in Crimea in the two years since the Orange Revolution. They have done so by cynically fanning ethnic Russian chauvinism towards Crimean Tatars and ethnic Ukrainians, through manipulation of issues like the status of the Russian language, NATO, and an alleged Tatar threat to "Slavs," in a deliberate effort to destabilize Crimea, weaken Ukraine, and prevent Ukraine's movement west into institutions like NATO and the EU.
Read more at Slate.
Timeline of the latest development in Ukraine over the last 24 hours (thanks to our colleagues at Al Jazeera English):
Ukraine's flags and a poster are pictured in front of Russia's embassy during a protest rally against Russian intervention in Crimea, in Riga March 2, 2014. Ukraine is preparing to defend itself against Russia but will ask other countries for help if Russia expands its military action, the Ukrainian ambassador to the United Nations said on Sunday. According to local media, about a thousand people attended the protest rally. (Reuters/Ints Kalnins)
Armed men check stand guard near the regional parliament building in the Crimean city of Simferopol March 2, 2014. Ukraine mobilised on Sunday for war and called up its reserves, after Russian President Vladimir Putin threatened to invade in the biggest confrontation between Moscow and the West since the Cold War. (Reuters/David Mdzinarishvili)
If Ukraine looks neatly delineated on maps, its often-bloody history is a tangle of invasions and occupations, peoples and beliefs. It is a place that has been struggling for centuries to define itself. And now it finds itself so sharply divided — between support for Russia on one side of the country and loyalty to the West on the other — that it often seems more like two countries than one.
On opposite sides of Ukraine, two cities, each of about 1 million people, illustrate that divide.
The eastern city of Donetsk can seem like a cliche of post-Soviet grimness, a place of Stalinist-era apartment blocks, tin-roofed shacks and loyalty to Russia. In the west, Lviv has emerged as a center for Ukrainian artists and writers, a huge draw for European tourists and a city desperate for closer ties to the West.
To the fiercest pessimists, as well as to extremists on both sides, the cities are already in different nations.
"The country is already separated," said Ivan Reyko, a 30-year-old factory worker from Donetsk who joined a recent demonstration of about 100 people in the city's main plaza, Lenin Square, where a 30-foot-tall statue of the Soviet hero gazes proudly toward the horizon. "There is no way back to a united Ukraine."
A recent series of ominous signs has diplomats warning the region could easily stumble into widespread violence. Among them: military drills just across the border by 150,000 Russian soldiers, and the seizure of the parliament building in the Russian-speaking region of Crimea by unidentified gunmen, who flew the Russian flag and chanted "Crimea is Russia."
People attend a rally at Independence Square in Kiev March 2, 2014. Ukraine mobilised for war on Sunday, after Russian President Vladimir Putin declared he had the right to invade, creating the biggest confrontation between Moscow and the West since the Cold War. (Reuters/Konstantin Grishin)