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Russian markets fall as rebel attack stokes new sanctions talk

People protesting in Kyiv against the shelling of Mariupol hold placards which translate as "USA and EU how long can you watch the killing in Ukraine?"Photograph by Yurko Dyachyshyn — AFP/Getty Images

Russia’s currency and stock market fell again Monday after a new offensive by Russian-backed rebels in eastern Ukraine drew threats of more sanctions from President Barack Obama and allies in Europe.

The forces of the self-styled Donetsk People’s Republic launched multiple rocket artillery attacks on the port city of Mariupol at the weekend, killing at least 30 civilians and injuring another 100, in what appeared to signal a new and more intensive stage of fighting in the conflict, which has killed over 5,000 in the last eight months.

That followed a declaration on Friday by the Donetsk rebels’ leader, Alexander Zakharchenko, that the rebels would no longer stick to the increasingly shaky truce agreed in Minsk, Belarus, last year but rather seek to extend the territory under their control. Mariupol is a key objective because it sits astride the shortest route from Donetsk to the peninsular of Crimea, which Russia annexed last year.

President Obama, who heard of the attack while on a state visit to India, said he “will look at all additional options that are available to us short of military confrontation and try to address this issue.”

Obama said the rebels had received ”Russian backing, Russian equipment, Russian financing, Russian training and Russian troops.”

The Russian ruble fell by 3% against the dollar Monday as markets priced in the risk of new sanctions that would add to the problems facing the country’s economy. The World Bank and IMF estimate that the combination of low oil prices and sanctions will cause the economy to shrink by nearly 3% this year.

Some countries are devaluing their currencies because they want to keep their competitiveness. Russia isn't one of them.
Some countries are devaluing their currencies because they want to keep their competitiveness. Russia isn’t one of them.


The RTS, Moscow’s benchmark stock index, fell 5.0%. Although it’s up 24% from its December low, when a full-blown currency crisis was threatening to erupt, it’s still down 43% from a year ago.

Russia’s political leaders had voiced defiance last week at the World Economic Forum in Davos, deputy Prime Minister Igor Shuvalov saying that “we will withstand any privations–we’ll eat less food, use less electricity…and other things that we have gotten used to.” However, business leaders are striking an ever-gloomier tone. The once-bombastic tycoon Oleg Deripaska said at Davos that the government’s plan to overcome sanctions with import substitution was doomed to failure, and said “the worst is all still ahead.”

In Europe, meanwhile, the attack led to an abrupt end to suggestions that sanctions might be eased in March. Federica Mogherini, the E.U.’s new foreign policy chief, warned that “further escalation…would inevitably lead to a further grave deterioration of relations,” while Donald Tusk, the president of the E.U.’s council, tweeted that it was “time to step up our policy based on cold facts, not illusions.”

“Once again, appeasement encourages the aggressor to greater acts of violence,” Tusk said.

The E.U. has called an emergency meeting of foreign ministers for Thursday to discuss the situation.

Russia, however, continues to blame the government in Kyiv for the fighting, in which the indiscriminate use of artillery by both sides is inflicting more and more civilian casualties.

In a telephone call with Mogherini, Foreign Minister Sergey Lavrov said that “if Ukraine’s authorities had accepted President Putin’s suggestion…to withdraw heavy artillery from the demarcation line in the Minsk memorandum…then tragedies such as Volnovakha, Donetsk and Mariupol could not have happened.”

Last week, 12 civilians were killed and wounded when a bus at a Ukrainian checkpoint was hit by what appeared to be a rebel artillery attack. Civilians in rebel-held Donetsk have also come under fire repeatedly this year, eight being killed by a mortar blast as they waited for a bus last Thursday.

President Vladimir Putin, meanwhile turned the accusation of sending soldiers into Ukraine back on the West Monday. Putin said the Ukrainian army “in essence isn’t an army, it’s a foreign legion, in this case a foreign legion of NATO soldiers who, of course, aren’t pursuing the national interests of Ukraine, RIA Novosti reported.