Stock markets have plunged and Brent crude oil and natural gas costs have surged as the crisis over Ukraine deteriorates.
In New York, the S&P 500 index ended 1% lower – leaving it more than 10% below an all-time high set in January.
Brent crude, the international oil benchmark, was trading at $99.50 at one stage on Tuesday – its highest level since September 2014 – and market experts warned of an inevitable spike beyond $100 in the event of a full invasion of Ukraine by Russia.
The price climbed by more than 4% as tanks and armoured personnel carriers were seen on the outskirts of Donetsk, the capital of one of two breakaway regions of eastern Ukraine that Russia said it had now recognised as republics.
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US and European sanctions followed president Putin’s declaration – raising the stakes and driving volatility across market values globally about the extent of the fall-out.
The UK said it was going to target five banks and three wealthy individuals initially while Germany said it had halted approval of the controversial Nord Stream 2 gas pipeline from Russia.
A key fear for investors is that Putin could potentially respond by disrupting supplies of oil and gas to Europe, threatening to add to an energy-led global inflation spiral because of the continent’s reliance on Russian energy.
UK contracts for next-day natural gas delivery were up by as much as 13% on Tuesday but, at 193p-per-therm, the cost is well down on levels above 400p seen last year.
Contracts for future delivery saw a similar spike.
Europe currently relies on Russia for more than 40% of its natural gas – with costs already reeling from weak stocks and supply disruption that have pushed UK energy bills to record levels, with the promise of worse to come in April and beyond already.
Stock markets in Asia were the first to react to the uncertainty created by Russia’s strategic move on Ukraine.
The Hang Seng in Hong Kong was down by almost 3% while Japan’s Nikkei shed just shy of 2%.
In London, the FTSE 100 opened 1.5% down led by banking and travel-related stocks but later recovered and closed 0.1% higher. The DAX in Frankfurt was 2.5% off in early trading but ended just 0.3% down on the day.
Investors seemed to take some heart from Kremlin assurances that it was still open to diplomacy while safer commodity-linked shares came into sharper focus at the expense of riskier assets.
But sentiment darkened again later as Russian legislators gave the green light to Mr Putin to use armed forces abroad.
New York’s stock indices had a mixed start but by the close of the session Dow Jones, S&P 500 and Nasdaq were all trading firmly in the red, each finishing 1% or more lower.
Russia’s rouble-linked stock market, the MOEX, was 7% down – building on sharp losses witnessed on Monday – but also saw an improvement in afternoon trading in Moscow.
Ipek Ozkardeskaya, senior analyst at Swissquote, wrote: “The latest turn of events narrows the chances of a Russian pullback, and the window for diplomacy is almost shut.
“The US ordered new sanctions on Russia and the new Russian-backed republics; Europeans pledged to respond as well. This is the worst escalation since the Cold War.”
She added: “The risk off mode will likely stay on for the coming hours, but at this point it’s hard to predict what’s next.
“Any positive news could reverse the bearish action and lead to sudden jumps in risk asset prices, yet a further escalation of tensions, which now became the base case scenario, should further enhance gains in energy, safe haven assets and gold.”
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