Russian and Ukrainian assets have both tumbled after the Ukrainian Navy said the Russian military had opened fire on several of its ships, wounding six sailors and subsequently seizing the vessels.
The Ukrainian hryvnia tumbled as much as 0.61 per cent against the dollar, and government bond yields jumped after a significant price fall. Russia’s Moev stock index slid 1.3 per cent, while the rouble sank 1.1 per cent.
The incident, which took place in the Kerch Strait between Russia and the Crimean Peninsula, has marked a fresh twist in an undeclared war between the countries that has been going on for almost five years.
Russia has closed off the waterway, a vital link between the Black Sea and the Sea of Azov, while Ukrainian President Petro Poroshenko has raised the possibility of Kiev invoking martial law.
Yesterday’s clash marked one of the first direct confrontations between the two countries, in a conflict that has been marked by Russia’s heavy use of proxies, including two Moscow-backed separatist movements in Ukraine’s far east. Russian has denied any direct military involvement.
Russia’s Federal Security Service (FSB), which oversees its Coast Guard, said that the Ukrainian ships – two artillery boats and a tugboat – illegally entered its waters. Ukraine disputes the claim, saying a Russian ship rammed the tugboat.
Both countries are allowed to use the sea by a long-standing bilateral treaty, but the Kerch Strait lies between Russian territory and the disputed Crimean Peninsula region, which Russia annexed in 2014.
Earlier this year, Russian President Vladimir Putin opened a bridge spanning the strait, cementing Moscow’s control of the region. Russia claimed waters off the peninsula’s coast following the annexation, a move that Ukraine has refused to recognise.
More than 10,000 people have been killed in fighting between Ukrainian troops and separatists, and east Ukraine sees daily skirmishes and conflicts.
NATO has backed Ukraine, saying it “fully supports the sovereignty of Ukraine and its territorial integrity, including its rights to navigation in its own territorial waters,” according to a statement quoted in a Kiev newspaper.
Tensions between the countries have been slowly bubbling up over the past few months, and international bodies will be watching the fallout closely as the threat of open conflict on Europe’s eastern border becomes more likely.