The looming confrontation between Russia and Ukraine felled Asia’s financial markets on Monday, 3 March. The Nikkei 225 index slid 1.3% to 14,652 points while the Hang Seng lost 1.5% to close at 22,500 points.
The Nikkei recovered slightly the next morning, however, rising 0.32% in early trading while the Hang Seng was up 0.21%. But in a sign that the Ukraine-Russia stand-off will continue to have an impact on the region and the rest of the global economy, oil prices have spiked above US$104 per barrel, up more than 2%.
“During the weekend, tensions between Russia and Ukraine escalated substantially, but a military conflict or war is unlikely, in our view,” Bank of America Merrill Lynch said in a report. “We think that Russia would still refrain from military involvement, as it has other forms of leverage on Ukraine.”
But like other analysts, the US investment bank warned that “risks of military conflict can jump in case of provocation from either side.”
The Russian Parliament approved the use of the military in Ukraine on 1 March at the request of President Vladimir Putin. Ukraine responded by putting its military on high alert. Ukraine says that Russian generals led troops into three military bases in Russian-speaking Crimea, an autonomous region of Ukraine, and demanded the surrender of Ukrainian forces.
The US says Russia now has “complete operational control of the Crimean Peninsula.” President Barack Obama and Europe’s leaders are contemplating economic sanctions on Russia, but military intervention seems unlikely.
Moscow’s ally, ousted Ukrainian leader Victor Yanukovych, surfaced in Russia on 28 February after disappearing from Kiev, Ukraine’s capital, which had been besieged by protests. An interim Ukrainian government has been formed led by Prime Minister Arseniy Yatsenyuk.
The Ukrainian protests were precipitated by Yanukovych’s suspension last year of an association deal with the European Union, which Russia opposed. Ukraine was part of the former Soviet Union, along with Russia.