Escalation is impacting financial markets as Russian military incursion into Donbas looks imminent
Following President Putin’s extraordinary security council meeting, Henry Wilkinson, chief intelligence officer at security intelligence firm Dragonfly, assesses that a Russian military incursion into Donbas is highly likely to be imminent and a heightened risk that this will also lead to Ukrainian and Russian regular forces engaging in combat in the coming days or weeks.
The Russian President ordered troops into two rebel-held regions in eastern Ukraine, which it now recognises as independent states. Footage has appeared to show Russian military vehicles heading towards the Ukrainian border.
“We now assess that a Russian military incursion into Donbas is highly likely to be imminent,” said Wilkinson. “President Putin has in the past hour concluded an extraordinary security council meeting in which all of his security and political advisors recommended that he recognise the independence of the two self-declared republics in Donbas: the Luhansk and Donetsk People’s Republics.
”An announcement is highly likely in the coming hours or days, and with it an instruction for Russian troops to enter the region.
“In our analysis, the most likely scenario now is Russian forces – on invitation – inserting into separatist-held territory in Donbas and effectively annexing part of or all of the region.”
Financial market jitters
Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown, said the deterioration in the situation was impacting financial markets.
‘’The FTSE 100 erased gains in early trading and the DAX in Frankfurt and CAC 40 in Paris fell into negative territory.
”Hopes had been raised that a summit could quell tensions but fresh diplomatic skirmishes have broken out.”
“Brent crude jumped almost 1.6% higher, back up above $95 a barrel .With tensions so high, energy markets remain jittery, with traders conscious that an invasion could lead to tough sanctions and further constrain oil supplies, particularly with global demand so high and inventories lower elsewhere.”
”Gas prices once again are on a march upwards, amid worries about availability if Russia’s aggressive stance escalates, with recent storms already disrupting deliveries.”
Worries that the Ukraine situation could rapidly escalate have also hit travel stocks.
”Dissent at the heart of the UK government about lifting of isolation rules is adding to the uncertainty, but it is the fresh talk of conflict that seems to have led to a wave of uneasiness rippling through the travel sector amid worries that confidence in the travelling public could take a severe knock if fighting breaks out.”
Tensions reach boiling point
Key unknowns in terms of the risk of a wider escalation is whether Russian forces would try to push across the frontlines in Donbas, or only occupy positions held by the separatists, according to Dragonfly.
”Russia has now amassed an invasion-scale force along the length of its border with Ukraine, including in Crimea and Belarus north of Kyiv,” said Wilkinson.
“Of particular concern, during the security council meeting the interior minister recommended that President Putin recognise the two self-declared republics along their original borders prior to the annexation of Crimea and subsequent invasion of Donbas in 2014. These borders are well-beyond the frontlines, and would include the Ukrainian controlled cities of Slovyansk and Mariupol.
”An attack beyond these lines of control would mark a significant escalation as they sit in Ukraine sovereign territory that Ukraine would be bound to defend.
“This highly unusual staged broadcast of Russia’s key security leadership is the strongest and clearest indication we have seen yet of the Kremlin’s military intent, beyond what has been reported by the US government and what we can reasonably deduce from Russian military deployments in recent days.
”We therefore assess that there is now a very high chance of Russian forces moving into Donbas in the coming days, and a heightened risk that this will also lead to Ukrainian and Russian regular forces engaging in combat in the coming days or weeks.”
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