Ukraine Leader Hardens Rhetoric Amid Crimea Spat With Russia

Russia-Ukraine Tensions Spill Over Into Markets
  • President Poroshenko warns of possible Russian invasion
  • Neighboring nations at odds over Russia’s sabotage claims

Ukraine’s president warned of a possible invasion by Russia, further fraying nerves that have been on edge since his Russian counterpart Vladimir Putin accused his neighbor last week of engaging in “terror” tactics in Crimea.

The situation in eastern Ukraine is deteriorating and the military may consider imposing a draft if hostilities worsen, President Petro Poroshenko said Thursday. Three soldiers were killed overnight in the worst spate of shelling in a year by Russian-backed separatists in the nation’s easternmost regions, according to the Ukrainian armed forces.

“The probability of escalation of the conflict remains very significant,” Poroshenko said in a televised speech. “We don’t rule out a full-scale Russian invasion.”

Rising tensions in Ukraine are heightening concern that the nation’s two-year-old conflict, which has killed almost 10,000 people, is in danger of boiling over. Ukraine has rejected the Russian president’s allegations that it sent saboteurs to Crimea who killed two Russian servicemen, while Putin has vowed to respond with “very serious” measures. Efforts to bring peace to eastern Ukraine have stalled, with the Russian leader saying planned talks at next month’s Group of 20 summit in China would be pointless.

The yield on Ukraine’s bonds due 2019 rose 18 basis points Thursday to 8.416 percent, the highest level on a closing basis since June 29, data compiled by Bloomberg show. The hryvnia gained 0.7 percent against the dollar at 8:47 a.m. in Kiev to 25.028.

Violence in eastern Ukraine has been building for several weeks, undermining a truce signed lat year in the Belarusian capital Minsk that has failed to bring about lasting peace. After the latest confrontation, Poroshenko put his army on high alert and Putin deployed air-defense missiles to Crimea. Russia’s Foreign Ministry said Thursday that the Minsk pact, which both sides blame the other for neglecting, is needed “more than ever.”

Poroshenko’s warning comes less than a week before Ukraine celebrates the anniversary of its independence from the Soviet Union, and with the nation struggling to restart a $17.5 billion Western-led bailout that stalled after the country failed to approve promised reforms. Putin, whose economy is still battling a recession and whose party faces elections in September, may be trying to gain the upper hand when discussions over Ukraine’s future resume.

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“This escalation may be linked with the Kremlin’s desire to exit the current format of talks,” Serhiy Zgurets, head of the Defense Express military-research center in Kiev, said by phone. “It wants to return to direct negotiations with the U.S. to divide spheres of interest.”

The European Union, which along with the U.S. is among Ukraine’s staunchest backers, said Wednesday that the Kremlin’s version of events in Crimea is “not credible.” The U.S. has said there’s insufficient evidence to confirm Russia’s accusations and dispatched a new shipment of military aid to Ukraine, including night-vision devices, Geoffrey Pyatt, the U.S. ambassador to the former Soviet republic, told Radio Free Europe in an interview Thursday.

Both the U.S. and EU imposed sanctions against Russia after Crimea was annexed and after the conflict in Ukraine’s east erupted. German Chancellor Angela Merkel said that she saw no reason to lift the trade penalties because the conditions for doing so hadn’t been met, according to an interview with Redaktions Netzwerk Deutschland on Friday. Implementing the Minsk agreement “is and remains the yardstick for the future of sanctions,” she said.

Putin may travel to Crimea Friday to talk with local officials and visit a summer camp for children, the Russian media group RBC reported Tuesday on its website, citing three people it didn’t identify.

Ukraine says it’s better prepared than in 2014 to repel any possible attack from its neighbor, which it alleges has been increasing deliveries of hardware to the region. The military has sufficient forces to resist a possible offensive, spokesman Oleksandr Motuzyanyk said Thursday.

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