As pro-Russia rebels declared victory in a referendum on self-rule in eastern Ukraine, analysts say investors should get ready for a ratcheting up of tensions between the West and Moscow.
“The vote is potentially significant because what it could do is encourage separatist leaders to believe that they might have more support in the region than they do,” said Graeme Gill, a professor at the Department of Government and International Relations at the University of Sydney.
“And that could make them more intransigent in terms of their relationship with Kiev,” he said referring to the interim government in Ukraine’s capital city.
A crisis in Ukraine has soured relations between the West and Russia.Western countries are wary of the similarities of Sunday’s vote in the eastern Ukraine region of Donetsk to a referendum held in the Crimea region in March that became a prelude to an annexation by Russia.
Reuters reported on Monday that separatist leaders in Donetsk had asked Moscow to consider absorbing it into Russia.
Russian authorities said on Monday that they respected the outcome of the eastern Ukraine referendum and that the results should be implemented peacefully.
In a move that could ratchet up the pressure on the government in Kiev, Bloomberg reported Monday afternoon that the chief executive of Russian gas giant Gazprom, Alexy Miller, had said the company would cut off its supply on June 3 if outstanding bills were not paid.
Meanwhile, European Union foreign ministers met in Brussels Monday and agreed to impose sanctions on two Crimean companies and 13 more Russians and Ukrainians, according to Reuters. The names of the individuals and companies will be made public on Tuesday.
“South-eastern Ukraine, the focal point for the most dangerous standoff between Russia and the West since the end of the Cold War, has been wrested from the grip of Kiev and has become a dangerous and volatile no-man’s-land,” Nicholas Spiro, the managing director at Spiro Sovereign Strategy, said in a note.
“While it suits Putin diplomatically to have the separatists disregard his call for them to postpone the referendums, there’s an inescapable feeling that Putin has bitten off more than he can chew in south-eastern Ukraine,” he added. “This is a region that’s spinning out of control and, as Friday’s horrific footage from Mariupol showed, is descending into civil war.”
Mariupol, a south eastern port, was the scene of fierce fighting last week.
Geopolitical tensions appeared to be having an impact on global financial markets as a new trading week got under way in Asia, with most regional stock markets lower.
Organizers of Sunday’s referendum in eastern Ukraine, declared illegal by the EU, said almost 90 percent had voted in favor, Reuters reported. The West has threatened more sanctions against Russia if it disrupts a presidential election planned for May 25 in Ukraine.
“This vote is a farce and in no way shows that a substantial majority in eastern Ukraine wants to join Russia,” said John Herbst, a director at the Eurasia Center, Atlantic Council and a former U.S. ambassador to Ukraine, told CNBC.
Mikio Kumada, an executive director and global strategist at LGT Capital Partners, said he did not believe global financial markets needed to fear a serious escalation in the Ukraine crisis yet.
“The way we look at Ukraine is that it is a risk factor but for the moment the most serious escalation scenarios are not going to be that dangerous enough to consider a re-allocation of assets,” he told CNBC. “But it is unpredictable so you have to keep an eye on it.”