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Putin tightens grip on Crimea

MOSCOW/PEREVALNOYE, Ukraine (Reuters) — Russia paid a heavy financial price on Monday for its military intervention in neighboring Ukraine, with stocks, bonds and the ruble plunging as President Vladimir Putin’s forces tightened their grip on the Russian-speaking Crimea region.

The Moscow stock market fell 10.8 percent, wiping nearly $60 billion off the value of Russian companies, more than the $51 billion Russia spent on the Winter Olympics in Sochi last month.

The central bank spent as much as $12 billion of its reserves to prop up the ruble as investors reacted to tensions with the West over the former Soviet republic.

Putin declared at the weekend he had the right to invade Ukraine to protect Russian interests and citizens.

Moscow’s U.N. envoy told a stormy meeting of the Security Council on Monday that Ukraine’s ousted leader Viktor Yanukovich had sent a letter to Putin requesting he use Russia’s military to restore law and order in Ukraine.

U.S. President Barack Obama was meeting on Monday night with top military and national security advisers about Ukraine. Earlier, he called Russia’s actions a violation of international law and of Ukraine’s sovereignty.

“Over time this will be a costly proposition for Russia. And now is the time for them to consider whether they can serve their interests in a way that resorts to diplomacy as opposed to force,” he told reporters, saying Putin should let international monitors mediate a deal acceptable to all Ukrainians.

The State Department said the United States was preparing to impose sanctions on Russia over the intervention, although no decisions had yet been made.

Obama said Secretary of State John Kerry would propose ways in which a negotiation between Russia and Ukraine could be overseen by a multilateral organization when he goes to Kiev on Tuesday.

The European Union threatened unspecified “targeted measures” unless Russia returns its forces to their bases and opens talks with Ukraine’s new government.

Show of strength?

In his first public appearance for nearly a week, Putin flew to watch military maneuvers in western Russia in what appeared designed as a show of strength.

Russia’s Black Sea fleet denied reports it had given Ukrainian forces in Crimea an ultimatum to surrender by early Tuesday or face attack, Interfax news agency said. The United States said any such threat would be a dangerous escalation.

Ukraine’s acting president said Russia’s military presence in Crimea was growing. Ukrainian officials said Russia was building up armor on its side of the 2.7- mile wide Kerch strait between the Crimean peninsula and southern Russia.

Russian forces later began shipping truckloads of troops by ferry into the Crimea region after seizing the border post on the Ukrainian side, Ukraine’s border guards spokesman said.

A Reuters reporting crew at the ferry terminal in Crimea later Monday saw no sign of unusual activity.

Kiev’s U.N. ambassador, Yuriy Sergeyev, said Russia had deployed roughly 16,000 troops to Crimea since last week.

Both sides have so far avoided bloodshed, but the market turmoil highlighted damage the crisis could wreak on Russia’s vulnerable economy, making it harder to balance the budget and potentially undermining business and public support for Putin.

Russian Deputy Economy Minister Andrei Klepach said market “hysteria” would subside but strains with Brussels and Washington — which has threatened visa bans, asset freezes and trade curbs — would continue to weigh on the economy.

On the ground in Perevalnoye, halfway between the Crimean capital, Simferopol, and the Black Sea, hundreds of Russian troops in trucks and armored vehicles were surrounding two military compounds. The troops, who had no national insignia on their uniforms, were confining Ukrainian soldiers, who have refused to surrender, as virtual prisoners.

Ukraine called up reservists on Sunday after Putin’s action provoked what British Foreign Secretary William Hague called “the biggest crisis in Europe in the 21st century.”

NATO allies will hold emergency talks on the crisis in Ukraine today, for the second time in three days, following a request from Poland, a neighbor of Ukraine.

European Union foreign ministers held out the threat of sanctions against Russia on Monday if Moscow fails to withdraw its troops from Ukraine, while offering to mediate between the two, alongside other international bodies.

They agreed on no details of any punitive measures against Russia. EU leaders will hold an emergency summit on Thursday.

But possible divisions emerged, with the BBC citing a document, inadvertently shown to a photographer, that said Britain opposes trade sanctions on Russia and does not want to shut London’s financial capital to Russians in response to the Kremlin’s intervention in Ukraine.

A spokeswoman for British Prime Minister David Cameron’s office said it did not comment on leaked documents. But she added, “The Prime Minister is clear that continuing to violate Ukraine’s sovereignty will have costs and consequences.”

Observer mission

The Organization for Security and Cooperation in Europe, or OSCE, said it was trying to convene an international contact group to help defuse the crisis after Germany said Chancellor Angela Merkel had persuaded Putin to accept such an initiative.

Switzerland, which chairs the pan-European security body, said the group could discuss sending observers to Ukraine to monitor the rights of national minorities.

“There will be very, very broad consensus for that monitoring mission. We call on Russia to join that consensus, make the right choice and pull back its forces,” U.S. Assistant Secretary of State Victoria Nuland told OSCE envoys in Vienna.

The Russian central bank raised its key lending rate by 1.5 percentage points after the ruble fell to all-time lows.

Tension over Ukraine also knocked 2 to 3 percent off European stock markets and 1 percent off Wall Street, and sent safe haven gold to a four-month high.

Chicago wheat futures rose more than 5 percent and corn about 4 percent amid fears of disruption to shipments from the Black Sea, a major grain-exporting zone.

Russian gas monopoly Gazprom, which supplies Europe through Ukraine, was down nearly 14 percent.

Gazprom’s finance chief warned Ukraine that it may raise gas prices from next month, accusing Kiev of a patchy payments record, but said gas transit to Europe was normal. Ukraine has been stocking up on gas imports in the last few days to beat a feared rise, a spokesman for its gas transit monopoly said.

Ukraine’s pro-Western prime minister, Arseny Yatseniuk, whose government took power when Yanukovich, a Russian ally, fled on Feb. 21 after three months of street protests, said Putin had effectively declared war on his nation.

Yatseniuk said the government planned to cut spending by 14 to 16 percent as Ukraine prepared for talks on Tuesday with the International Monetary Fund to avert the danger of default.

Western leaders have sent a barrage of warnings to Putin against armed action, threatening economic and diplomatic consequences, but are not considering a military response.