European shares sunk to a seven-month low in early trading on Tuesday as investors spooked at the prospect of economic sanctions against Russia, which has deployed troops to two breakaway regions of eastern Ukraine.
The Frankfurt DAX, seen as more vulnerable to the prospect of a Russia-Ukraine conflict due to Germany's reliance on Russian gas supplies and the index's own lack of energy companies, was hit hardest, falling 2.3%.
The London FTSE 100 index lost 1.5% in opening trade while the Paris CAC 40 dropped almost 2%, and the Dublin market also declined more than 2%. Earlier in Asian trade, shares in Hong Kong fell 2.7% while markets in Tokyo closed 1.7% down.
European investors instead invested in gold and government bonds ahead of the expected announcement by the US and its western allies of new sanctions against Russia.
Oil prices also rallied amid fears of supply disruption, with Brent crude trading at $97.67 per barrel, its highest level since September 2014, and oil and gas stocks increasing 0.7% overall, adding to worries about inflation.
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Car makers, banks and financial services were the hardest hit stock in Europe, falling between 2.7% and 3.1%, and US markets are bracing for significant losses at the opening bell, with S&P 500 futures down 1.4% and Nasdaq futures off 1.9%.
Russian President Vladimir Putin on Monday recognised the regions of Donetsk and Luhansk as independent and ordered Russian forces to embark on what Moscow described as a peacekeeping operation in the area, stoking fears of impending war.
Putin made the announcement following a long televised address during which he questioned the statehood of Ukraine and bucked against its deepening ties to the west, which he said was a major threat to Russian security.
"I deem it necessary to make a decision that should have been made a long time ago – to immediately recognise the independence and sovereignty" of the two regions, Putin said.
He also accused Ukraine of committing "genocide" against the mostly Russian-speaking residents of the regions, although he gave no evidence to support the claim, and characterised Ukraine as a Soviet construct, a failing state controlled by nationalists and Washington, and a potential menace to Moscow due to its stock of nuclear weapons.
Putin has deployed 150,000 Russian troops, tanks, fighter jets, missile systems and warships to the north, south and east of Ukraine in recent weeks.
The Kremlin-backed leaders of Donetsk and Lunhansk had appealed to Putin to recognise their independence amid a surge in shelling in the Donbas area, which Kyiv and its western allies have said is part of Moscow's plan to create a pretext for more aggression against the country.
The White House said US President Joe Biden would sign an executive order on sanctions to prohibit US economic ties with Donetsk and Luhansk, and Biden has spoken with Ukrainian President Volodymyr Zelenskyy, who has called a meeting of his country's security and defence council in Kyiv.
The EU said Putin's decree was a "blatant violation of international law, the territorial integrity of Ukraine and the Minsk agreements," the 2015 peace framework for Donbas, and Minister for Foreign Affairs Simon Coveney has said "Ireland’s support for Ukraine’s sovereignty and territorial integrity is unwavering.
“The decision by Russia to recognise the areas of Donetsk and Luhansk contravenes international law. Ireland supports a clear, united and strong EU response, including sanctions."
(Pic: Getty Images)
