Crimea Crisis Worsens as Ukraine Says Russia Threatens Navy

Ukraine said Russia threatened to seize its war ships in Crimea amid the worst standoff between the West and Russia since the end of the Cold War.

Russia told the ships to surrender, Ukraine’s acting President Oleksandr Turchynov said today in televised remarks. Russia earlier denied a report it had given the ships, located near the port of Sevastopol, until 5 a.m. to give up weapons and capitulate. Western diplomats are seeking to calm tensions, with U.S. Secretary of State John Kerry arriving in Kiev tomorrow.

Crimea, where ethnic Russians comprise the majority, has become the focal point of Ukraine’s crisis after an uprising triggered last month’s ouster of President Viktor Yanukovych. Ukraine has mobilized its army and called for foreign observers after Russian forces took control of the peninsula. Russia, which keeps its Black Sea fleet at Sevastopol, raised its interest rates today as asset prices plummeted.

“Russia would most likely like to maintain its pressure, and this will continue to create tension,” Nomura Holdings Inc. said by e-mail. “We wouldn’t expect any military involvement outside the Crimean peninsula at this stage, but direct military action between Ukraine and Russia can’t be excluded.”

Kiev ‘Coup’

Russian President Vladimir Putin claims extremists orchestrated a coup to dislodge Yanukovych and says Russian speakers in Ukraine’s east and south need protection. Ukraine’s Turchynov has warned that a military invasion would be an act of war, saying Russians aren’t at risk.

Ukraine’s border guards and Defense Ministry warned earlier that Russia’s military is strengthening its presence in Crimea, with servicemen confronting local army units, fighter jets violating airspace and more war ships arriving.

Ukrainian Prime Minister Arseniy Yatsenyuk yesterday urged Putin to pull back his forces, warning that the nations were “on the brink of disaster.” He reiterated calls today for a political solution, though he said Russia won’t hold bilateral talks.

Russia has called for a meeting of the United Nations Security Council, according to Jacques Flies, a spokesman for the UN mission of Luxembourg, which is presiding over the UN this month. Russian Premier Dmitry Medvedev discussed the situation by phone today with U.S. Vice President Joe Biden.

Obama Warning

President Barack Obama, speaking to reporters today before a White House meeting with Israeli Prime Minister Benjamin Netanyahu, said the U.S. and allies were preparing sanctions to show Russia its actions will be “costly.”

“We are planning several steps, economic and diplomatic, that will isolate Russia,” said Obama, who spoke to Putin by telephone on March 1. One option would be to send international monitors to “de-escalate the situation.”

The tension is roiling markets. Russia’s ruble weakened to a record low against the central bank’s dollar-euro basket even after policy makers unexpectedly raised their benchmark rate by 150 basis points to 7 percent. The Micex stock index plunged 11 percent, the most since 2008, while bond yields jumped.

The military standoff helped send Brent crude up as much as 3 percent. There have been no disruptions to oil shipments to Europe through the Druzhba pipeline that crosses Ukraine, a key east-west transit nation for Russian energy, OAO Transneft spokeswoman Natalya Kutsik said today.

Ukraine’s hryvnia weakened 2 percent to 9.75 per dollar, while the yield on its dollar debt due 2023 soared 106 basis points to 10.506 percent, data compiled by Bloomberg showed.

IMF Financing

An International Monetary Fund mission starts in Ukraine tomorrow, Managing Director Christine Lagarde said today. Ukraine needs $15 billion in the next 2 1/2 years to stay afloat, Finance Minister Oleksandr Shlapak said March 1. It’s seeking about $3 billion of financing in the first installment, according to a person with knowledge of the talks.

EU and U.S. officials who’d been racing to secure billions of dollars of bailout cash for Ukraine’s new cabinet have been forced to switch their focus to averting a military conflict.

Kerry will travel to Kiev this evening, U.S. officials said. He said yesterday that Russia may lose its membership of the Group of Eight industrialized nations and raised the prospect of asset freezes, visa bans and trade disruptions.

European Union foreign ministers met in Brussels and said they’re considering halting trade and visa-facilitation talks with Russia without a “de-escalation” in Ukraine. The bloc may impose sanctions that hurt Russia’s hydrocarbon industry, Polish Foreign Minister Radoslaw Sikorski said.

‘Can Normalize’

The leaders of Canada, France, Germany, Italy, Japan, the U.K. and U.S., along with the heads of the European Council and the European Commission said they wouldn’t resume preparations for the summit in Sochi, Russia, “until the environment comes back where the G-8 is able to have meaningful discussion.”

Putin agreed to create a group to begin dialog on Ukraine after a phone call yesterday with German Chancellor Angela Merkel, according to a German government statement.

Russia doesn’t want a war and the situation “can normalize” if the new government “starts to resolve domestic problems in accordance with international law,” Deputy Foreign Minister Grigory Karasin told Russian state TV yesterday.

Crimea was given to Ukraine by Russia in 1954 by then-Soviet leader Nikita Khrushchev. People who identified themselves as ethnic Russian comprise 59 percent of Crimea’s population of about 2 million, with 24 percent Ukrainian and 12 percent Tatar, according to 2001 census data. Russians make up 17 percent of Ukraine’s entire population of 45 million.

Emrullah Isler, deputy premier of Turkey, located across the Black Sea, said today his government is working to protect the country’s ethnic brethren in Crimea. The region will hold a March 30 referendum on wider autonomy.

EU foreign policy chief Catherine Ashton condemned Russia’s “clear violation” of Ukraine’s sovereignty and said she’d meet Russian Foreign Minister Sergei Lavrov today as the east-west tensions showed no sign of abating.

“If there is no quick and credible contribution toward de-escalation by the Russia side, then decisions will have to be made that would affect the bilateral relationship between the EU and Russia,” German Foreign Minister Frank-Walter Steinmeier told reporters in Brussels.

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