Ukraine Fighting Surges as Russian-Backed Forces Gain

Separatists in eastern Ukraine are battling government forces on two fronts near the Sea of Azov and south of Donetsk as NATO reports a surge of Russian troops and advanced equipment into the war-zone.

The U.S. and the European Union are threatening Russian President Vladimir Putin with further sanctions, even as the EU began talks in Moscow today aimed at a temporary deal with Ukraine to allow natural gas flows to resume. Russian Foreign Minister Sergei Lavrov dismissed satellite photos that NATO said show Russian troop movements as fakes.

“There was news that space imagery shows movements of Russian troops and the images turned out to be from computer games,” Lavrov told reporters today in Moscow.

Ukrainian Prime Minister Arseniy Yatsenyuk called today for the parliament in Kiev debate possible NATO membership for the country.

North Atlantic Treaty Organization Secretary General Anders Fogh Rasmussen today reaffirmed a 2008 Bucharest summit pledge that “Ukraine will become a member of NATO” if it so wishes and provided it fulfills the necessary criteria.

“Despite Moscow’s hollow denials, it is now clear that Russian troops and equipment have illegally crossed the border into eastern and south-eastern Ukraine,” Rasmussen told reporters in Brussels. “Russian forces are engaged in direct military operations inside Ukraine.”

Swedish Foreign Minister Carl Bildt said on Twitter “this is the second Russian invasion of Ukraine within a year.”

Proxy Warriors

Jan Techau, director of the Brussels office of the Carnegie Endowment, said the Kremlin has concluded its proxy warriors in Ukraine can’t win alone.

“Putin’s decided he can pretty risklessly consolidate the separatists’ territory by openly sending in his own troops,” Techau said in a phone interview. “His goal is creating a statelet he can turn into a frozen conflict.”

The Russian leader said Ukraine must be forced into negotiations to end five months of bloody battles. Putin said today that the Ukrainian military’s attempt to retake separatist-held areas of the country by force reminded him of World War II when Nazi troops besieged and bombed cities including his hometown of St. Petersburg.

The United Nations raised its death toll estimate for the conflict to almost 2,600.

Soldiers Ambushed

Ukrainian troops, retreating after reinforcements failed to arrive, were ambushed and involved in a serious firefight, Semen Semenchenko, a Ukrainian military commander in Ilovaysk, said in a Facebook posting today. Two Ukrainian officers blew themselves up after they were surrounded by 12 Russian paratroopers in close quarters, the Defense Ministry in Kiev said in a statement on its website.

Ukrainian soldiers are battling Russian-backed forces near Donetsk, Luhansk, Alchevsk and other towns in the area, military spokesman Leonid Matyukhin said. Government forces took over the town of Komsomolsk in Donetsk region and troops moved into Mariupol, on the Sea of Azov, to reinforce the city, the National Guard said in a statement on its website.

The military draft will be reintroduced in Ukraine and Kiev is seeking U.S. support and special partner status, Mykhailo Koval, the deputy head of Ukraine’s National Defense and Security Council, told reporters. The U.S. has a “range of tools” to help Ukraine and discussions with the country’s government are under way, State Department spokeswoman Jen Psaki said in Washington.

Ruble Down

The ruble sank 0.6 percent to 36.9705 per dollar, weakening for a fourth day after closing at a record low yesterday. The currency has dropped 3.3 percent in August, its second monthly slide. The Micex stock index traded down 1.3 percent at 1,405.88 as of 4:32 p.m. in Moscow, extending yesterday’s 1.7 percent tumble, the steepest since Aug. 6.

The yield on Ukraine’s dollar-denominated notes due in July 2017 rose 33 basis points to 12.54 percent, a three-month high. The yield is up 371 basis points in August, the biggest monthly increase since the bonds were sold in July 2012.

Russia’s equity markets may face a “Lehman moment” if the Ukraine conflict deteriorates further, according to Alexander Kantarovich, head of research for JPMorgan Chase & Co. in Moscow.

Russian Troops

Russia is masterminding the rebel counteroffensive, with more than 1,000 of its troops operating inside Ukraine to man sophisticated weaponry and advise the separatists, NATO said.

The rebels’ opening of second front along the northern edge of the Sea of Azov could be a prelude to establishing a land corridor with Crimea, which Russia seized from Ukraine and annexed, Brigadier General Nico Tak told reporters yesterday at the North Atlantic Treaty Organization’s military headquarters in Mons, Belgium.

Russia’s Lavrov said rebels are pushing back Ukrainian forces in order to protect civilians.

Pro-Russian separatists have put Ukraine’s government troops on the defensive after weeks of advances that forced the rebels into Donetsk and Luhansk and took large areas previously occupied by the insurgents.

EU leaders will discuss the crisis and possible tougher sanctions against Russia at a summit in Brussels tomorrow, German Chancellor Angela Merkel said. Russia faces more sanctions if the escalation of fighting continues, according to French President Francois Hollande. The EU summit may be attended by Ukrainian President Petro Poroshenko who is due meet European officials in Brussels earlier in the day.

Kremlin Intervention

Merkel’s chief spokesman, Steffen Seibert, said today that reports on the Ukraine situation on the ground “amount to a Russian military intervention.”

President Barack Obama said Russia faces “more costs and consequences” because it “has deliberately and repeatedly violated the sovereignty and territorial integrity” of Ukraine. Obama ruled out “a military solution to this problem.” The Kremlin has repeatedly denied any involvement in the unrest.

Obama said that he’ll use a trip next week to Estonia, a former Soviet republic that’s now a member of both the EU and NATO, to reaffirm the U.S.’s “unwavering commitment” to defend its members, some of which are “close by” Ukraine.

A Sept. 4-5 NATO summit in the U.K. will also address the Ukraine crisis.