Ukraine Says Russian Forces Among Separatists as Battles Ensue

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Photographer: Genya/Savilov/AFP via Getty Images

Pro-Russian forces outside the regional police building in the eastern Ukrainian city of Slavyansk on April 15, 2014.

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Photographer: Genya/Savilov/AFP via Getty Images

Pro-Russian forces outside the regional police building in the eastern Ukrainian city of Slavyansk on April 15, 2014. Close

Pro-Russian forces outside the regional police building in the eastern Ukrainian city of Slavyansk on April 15, 2014.

Photographer: Genya Savilov/AFP via Getty Images

Russian troops guard a building seized by pro-Russian separatists in the eastern Ukrainian city of Slavyansk on April 16, 2014. Close

Russian troops guard a building seized by pro-Russian separatists in the eastern Ukrainian city of Slavyansk on April 16, 2014.

Photographer: Genya Savilov/AFP via Getty Images

Russian troops guard a building seized by pro-Russian separatists in the eastern Ukrainian city of Slavyansk on April 16, 2014. Close

Russian troops guard a building seized by pro-Russian separatists in the eastern Ukrainian city of Slavyansk on April 16, 2014.

Photographer: Sergei Grits/AP Photo

Pro-Russian activists make barricades in front of the gate of an airport in Kramatorsk, Ukraine on April 15, 2014. Close

Pro-Russian activists make barricades in front of the gate of an airport in Kramatorsk, Ukraine on April 15, 2014.

Ukraine began an offensive against separatists in its eastern regions, recapturing an airport amid claims Russian special forces were supporting the anti-government groups.

Units from Ukraine’s Interior Ministry yesterday ousted pro-Russian activists who’d seized the airfield in Kramatorsk, though there were conflicting accounts on casualties. While there were no reports of violence overnight, two Ukrainian soldiers were kidnapped, according to the Interfax news service. U.S. Representative Mike Rogers, chairman of the House Intelligence committee, accused Russia of “sabotage.”

“There are Russian citizens who are, again, military and intelligence operatives in eastern Ukraine fomenting this trouble,” Rogers said yesterday in an interview on CNN. “They are recruiting, and there’s some level of training.”

Full coverage of the Crisis in Ukraine:

The airport operation marked Ukraine’s first foray against armed activists holding government buildings in cities near the Russian border. Efforts to contain the insurgency risk escalating tensions with Russia, which warned of a potential civil war. NATO says Russia has 40,000 troops massed on Ukraine’s border after its annexation of Crimea last month.

With tensions running high, the U.S. and its European allies are threatening a new round of penalties against Russian interests if the crisis continues. Envoys from Ukraine, Russia, the U.S. and European Union are scheduled to hold talks tomorrow in Geneva on the situation.

Sanctions Pain

Sanctions imposed by the U.S. and EU have already had an impact. Russia’s Micex Index (INDEXCF) of equities has lost 12.7 percent this year, while the ruble has weakened 8.9 percent against the dollar. After declines yesterday, the benchmark stock index gained 0.2 percent today. The ruble appreciated 0.3 percent.

The unrest has also hurt Ukrainian asset prices. The hryvnia, this year’s world’s worst performer against the dollar among more than 100 currencies tracked by Bloomberg with a 30 percent loss.

The clashes have prompted diverging views from Russia and the U.S. Speaking with United Nations Secretary-General Ban Ki-moon, President Vladimir Putin called the events “unconstitutional” and demanded international condemnation of the crackdown, according to a statement e-mailed by the Russian leader’s press service.

‘Credibility Problem’

The U.S. is “admiring” the restraint show by Ukraine, with Russia directly and indirectly supporting the provocations, White House press secretary Jay Carney said.

Poland’s Foreign Minister Radoslaw Sikorski said in an interview with Polish broadcaster TVN24 that Putin has “a credibility problem” in denying Russian troops are in Ukraine after similar denials in Crimea proved to be false.

Sikorski said the U.S. is “seriously considering” putting ground forces in Poland as part of an effort to bolster North Atlantic Treaty Organization forces in eastern Europe.

Putin, who plans to hold a televised call-in news conference tomorrow, is getting appeals for help from eastern Ukrainians alongside questions about why Russia isn’t taking action, his spokesman, Dmitry Peskov, told reporters yesterday. Putin has parliamentary approval to deploy troops in Ukraine to protect Russian speakers and those of Russian heritage.

Ceding Powers

Ukraine must stop quashing protests and hold a referendum on devolving power to regions, Russian Foreign Minister Sergei Lavrov was quoted as saying by RIA in Beijing yesterday. He said using force could jeopardize the Geneva talks.

“Russia is in an excellent bargaining position before the start of talks,” Gary Greenberg, who oversees about $785 million in emerging-market stocks at Hermes Fund Managers Ltd., said in a phone interview from London. “Having provocateurs in Ukraine or having the Ukrainian government forces start shooting puts Russia in much stronger position in its negotiating dance with Europe and the U.S. This is part of their strategy.”

As the operation unfolded in Kramatorsk, Ukrainian First Deputy Prime Minister Vitali Yarema said on Channel 5 that members of Russia’s 45th Airborne Regiment were seen in the city and in the town of Slovyansk. A spokesman for the Russian Defense Ministry declined to comment yesterday on the claim.

Stanislav Rechinsky, an adviser to Ukraine’s Interior Ministry, said one protester was wounded and no one was killed at the airfield, while Russian state television reported that as many as 11 militants had died.

Soldiers Abducted?

Two Ukrainian soldiers were captured after their car broke down in Krasny Luch in the Luhansk region, Interfax reported today, citing an unidentified official at Ukraine’s Defense Ministry. The soldiers sought help from local police, who handed them over to pro-Russian activists, the news service said.

Acting Ukrainian President Oleksandr Turchynov said yesterday in a statement on his website that the aim of the offensive in the east is to “protect people.”

“Apart from Russian special forces and terrorists, there’s hundreds of thousands of innocent Ukrainian people deceived by Russian propaganda, and that is why we will take any needed anti-terrorist actions prudently and responsibly.”

There are at least 450 Russian soldiers without army insignia in the Donetsk region, according to Vasyl Krutov, head of the anti-terrorist center of Ukraine’s SBU security service, Interfax said today.

‘No Option’

“Ukraine had no option,” Ievgen Vorobiov, an analyst at the Warsaw-based Polish Institute of Foreign Affairs, said by phone from Kiev. “The government’s hand was forced into a very uncomfortable decision, even if it fits into the Russian plan. This strike will send Russia a clear signal that the Ukrainian government isn’t ready to pull out of Donetsk and Luhansk.”

EU ministers meeting in Luxembourg this week added four Ukrainians to the list of people being sanctioned, including former deputy Prime Minister Serhiy Arbuzov. EU sanctions now cover 55 Ukrainians and Russians.

The bloc indicated it will widen the blacklist to target people and possibly groups or companies responsible for destabilization in eastern Ukraine. Any sign that Russian troops were crossing into Ukraine would be a trigger for the EU, according to Hungarian Foreign Minister Janos Martonyi.

“If Russian troops cross the border -- a military incursion or invasion -- into eastern or southern Ukraine, that would suddenly be a cause for launching stage three, economic sanctions, or targeted measures,” Martonyi said in an interview yesterday in Brussels.

To contact the reporters on this story: Jake Rudnitsky in Moscow at jrudnitsky@bloomberg.net; Kateryna Choursina in Kiev at kchoursina@bloomberg.net; Stepan Kravchenko in Moscow at skravchenko@bloomberg.net

To contact the editors responsible for this story: Steven Komarow at skomarow1@bloomberg.net; Balazs Penz at bpenz@bloomberg.net Andrew Langley, Paul Abelsky

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