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POLITICAL ECONOMY
West and Russia clash over Crimea as markets fall
by Staff Writers
Kiev (AFP) March 03, 2014


Russia cemented its control of the flashpoint Crimean peninsula without firing a shot as markets plunged on Monday and world leaders held a series of crisis talks over the worst standoff between Moscow and the West since the Cold War.

The price of oil surged on fears of an all-out conflict as Russia looked set to send troops into eastern parts of Ukraine, an area with close ties to Russia that the Kremlin has vowed to protect from "ultranationalist forces".

British Foreign Secretary William Hague opened talks with Ukraine's Western-backed but untested interim leaders a day after the world's top industrialised powers threatened to strip Russia of its coveted seat at the Group of Eight for menacing its ex-Soviet neighbour.

Germany offered a rare glimmer of hope by announcing that Russian President Vladimir Putin had agreed in telephone talks with Chancellor Angela Merkel late Sunday to set up a contact group on Ukraine.

Western allies in the North Atlantic Treaty Organisation also said they wanted to send international observers to Ukraine while engaging Moscow in direct talks.

Washington added it would like to see a mission from the Organisation for Security and Cooperation in Europe (OSCE) deployed in the nation of 46 million "immediately". The OSCE president said it wanted the mission to investigate "incidents" in Ukraine.

Russia offered no immediate response to any of the proposals -- all backed by Kiev's interim leaders who are trying to pull Ukraine closer to the European Union after replacing the deposed and largely exiled regime of pro-Kremlin president Viktor Yanukovych.

A crisis on the eastern edge of Europe that threatens to blow up into the biggest test of Moscow's relations with the West since the height of the Cold War also saw world powers promise to deliver urgent aid to try to prevent Ukraine's teering economy going into default within days.

Crimea itself, which has housed Russian navies since the 18th century, is now almost under complete control of Russian forces and local pro-Kremlin militia who patrol both government buildings and the perimeters of Ukrainian military installations on the rugged Black Sea peninsula.

The devastating scale of Kiev's loss was underscored late Sunday when the head of Ukraine's navy Denis Berezovsky announced just a day after his appointment that he was switching allegiance to the pro-Russian authorities in Crimea after troops surrounded his building and cut off the electricity.

Crimea's pro-Kremlin government chief Sergiy Aksyonov -- appointed Thursday after an armed raid on the region's government building but who is not recognised by Kiev -- immediately named Berezovsky as head of the peninsula's own independent navy.

Ukraine's interim Prime Minster Arseniy Yatsenyuk admitted Sunday: "We are on the brink of a disaster" and said any invasion would mean "war".

- Market jitters -

The first business day since Russian senators authorised Putin to use force against Ukraine on Saturday saw Asian markets drop sharply and the Moscow exchange open eight percent.

Russia's central bank dramatically hiked its main interest rate to 7.0 percent after taking no action for nearly two years to halt a meteoric ruble decline that saw it establish record lows again the dollar on Monday.

The ruble fell to a record low against the dollar and was still about one percent down against the euro after the central bank's dramatic intervention.

Brent North Sea crude for April jumped $1.62 to $110.69 while New York's main contract -- West Texas Intermediate (WTI) -- for April delivery gained $1.14 to $103.73 in Asian trade.

"A situation is emerging that could have profound circumstances for many major Russian companies," Moscow's Nord Capital financial advisory said in a research note.

Shares of Russia's natural gas giant Gazprom tumbled by more than 11 percent on uncertainty about whether the state-controlled company may be ordered to halt deliveries to Ukraine -- and by consequence Western Europe -- as a punitive step by the Kremlin against the new Kiev team.

- G7 condemns Russian 'violation' -

The White House on Sunday released a statement symbolically signed by the G7 biggest industrialised nations -- an economic grouping that unlike the G8 excludes Moscow -- condemning "the Russian Federation's clear violation of the sovereignty and territorial integrity of Ukraine".

The G7 ministers promised "strong financial backing" that US Treasury Secretary Jack Lew said would probably be delivered through a programme overseen by the International Monetary Fund.

US Secretary of State John Kerry also bluntly warned that Moscow risked losing its G8 seat over its "brazen act of aggression" in Ukraine.

State Department spokeswoman Jen Psaki said Kerry will Tuesday meet Ukraine's new leaders -- in power since the February 22 overthrow of Yanukovych following a week of violence that claimed nearly 100 lives -- to reaffirm "strong support for Ukrainian sovereignty, independence, territorial integrity".

- 'David and Goliath' -

Analysts believe Ukraine would face a David-and-Goliath struggle should the conflict escalate.

Russia's army of 845,000 soldiers could easily overwhelm Ukraine's force of 130,000 -- half of them conscripts.

But Matthew Clements of Jane's Intelligence Review also noted that "if the Ukrainian forces remain unified and there are no defections to the Russian side, they have some chance of holding Russia back in a full-combat situation for a considerable time."

Putin says it has a duty to protect ethnic Russians in Crimea and southeastern swathes of Ukraine that have ancient ties to Moscow and look on Kiev's new pro-EU leaders with disdain.

Russia also turned for diplomatic backup from China -- a nation that has joined it in vetoing three UN Security Council resolution against Syrian President Bashar al-Assad.

The Russian foreign ministry said Sergei Lavrov and his Chinese counterpart Wang Yi noted in a phone call "broadly coinciding points of view" over the situation.

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