Rising tensions in the Crimea hurt financial markets in Russia and Ukraine

Russia-Ukraine tensions rise in the wake of Kerch Straight ship seizure and financial markets in both countries take a hit as investors get skittish.

Russian supporters of Vladimir Putin ahead of General Election
Source: Bloomberg

Ukraine had three naval vessels seized by Russian forces off the coast of Crimea over the weekend, which sent shockwaves through the financial markets of both countries on Monday.

In the wake of the naval provocation, the Russian ruble fell 0.4% - the lowest level the currency has seen in last two weeks – while the Ukrainian hryvnia weakened against the dollar, sliding by as much as 0.61%.

Ukraine looks to stabilise economy

On Monday, the National Bank of Ukraine (NBU) announced that it would intervene in the foreign exchange market to protect the hryvnia suffering major ‘fluctuations provoked by negative sentiment’.

The announcement came after Ukraine’s parliament said that it will vote on whether it will impose martial law after six of the country’s sailors were wounded after Russian forces fired at three of its naval ships.

‘The NBU has sufficient resources and instruments to conduct the FX interventions,’ Governor of the NBU Yakiv Smolii said. ‘At present, the international reserves stand at USD 17.8 billion.’

Prior to the latest incident, the Ukrainian government had been working with the International Monetary Fund (IMF) to obtain $3.9 billion in loans to help steady its economy.

Tensions rise once more in the Crimea

The market turmoil that occurred on Monday is the result of the most serious escalation between Russia and Ukraine since Putin gave the order to annex the Crimea in 2014.

The Kerch Strait, which is where the incident occurred, connects the Sea of Azov with the Black Sea and is major trade route for grain, oil, minerals and timber.

Under a 2003 treaty that the two countries signed, the Kerch Strait and the Sea of Azov are declared as share territorial waters.

But Russia has since accused the Ukrainian ships of illegally entering its waters, while government officials in Kiev said that the Russian military pursued their vessels and rammed the trio’s tug boat.

The incident marks the first major military conflict the two countries have shared in recent years; however, Ukrainian forces have been fighting Russian-backed separatists to the east of the country.

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