Ukraine Unrest Flares as Kiev’s Control Slips

Ukraine continued military operations to dislodge rebels from its eastern industrial heartland as violence that’s spread to the Black Sea gateway of Odessa threatens to loosen Kiev’s control of the regions.

Government troops are in heavy fighting in Slovyansk, Interfax reported. Ukraine sent special forces from Kiev to Odessa after dismissing the local police for “possibly criminal” actions related to a deadly fire there, Interior Minister Arsen Avakov said on his Facebook account.

Ukrainian Prime Minister Arseniy Yatsenyuk said in a BBC interview the conflict is a “real war” and that it’s “due to Russian aggression and due to Russian-led protesters.”

Fighting in Odessa, where Interfax said two people were injured yesterday, is taking place about 160 kilometers (100 miles) from the European Union’s southeastern frontier in Romania. It’s also Ukraine’s most important conduit to the Black Sea after Russia took control of Crimea last month. Four EU and NATO members share a border with Ukraine: Hungary, Poland, Romania and Slovakia.

‘Unconventional Attack’

“Russia is launching an unconventional attack on its neighbor,” Joerg Forbrig, senior program officer for central and eastern Europe at the Berlin bureau of the German Marshall Fund of the U.S., said in a phone interview. “It’s multi-layered with unmarked soldiers, cyber-warfare and a huge propaganda campaign. Locals involved aren’t the driving force.”

The turmoil drove the yield on Ukrainian government debt up four basis points, or 0.04 percentage point, to 10.83 percent today,the highest since March 17, data compiled by Bloomberg show. Russian bonds advanced, with the yield on ruble-denominated government debt due February 2027 falling 8 basis points to 9.59 percent.

Wheat surged to the highest price in more than a year with futures for July delivery jumping as much as 3.4 percent to $7.405 a bushel on the Chicago Board of Trade, the highest level for a most-active contract since March 28, 2013. Russia is the world’s fifth-biggest exporter of wheat, followed by Ukraine.

Putin ‘Concerned’

Russian President Vladimir Putin is “extremely concerned,” spokesman Dmitry Peskov said May 3. Peskov said Kremlin officials were getting “thousands of calls” from Ukraine seeking help.

“People are calling in despair,” Peskov told reporters. “The vast majority are asking for help from Russia.”

Russian Foreign Minister Sergei Lavrov will attend a Council of Europe meeting tomorrow in Vienna, the ministry said in a statement on its website.

Putin and German Chancellor Angela Merkel discussed the importance of the Organization for Security and Cooperation in Europe in easing the conflict in Ukraine in a call yesterday, according to a Russian government statement.

German Foreign Minister Frank-Walter Steinmeier called for a return to direct Russia-Ukraine talks to resolve the conflict. He told Germany’s ARD television that he’s been trying to win support for a second set of Geneva talks. A Geneva accord from a April 17 meeting attended by Russia, Ukraine, the U.S. and the EU hasn’t been adhered to.

Robust Response

“Germany needs to understand that far more robust language and measures are needed to respond to Russia,” Jan Techau, head of the Brussels office of the Carnegie Endowment, said in a phone interview. “The German government is underperforming in this crisis.”

The assault in the Donetsk region marked the biggest operation yet by the Ukrainian government to retake ground from as many as 1,000 armed gunmen who’ve seized buildings in more than 10 towns and taken several dozen captives.

Polish Defense Minister Tomasz Siemoniak said Ukraine’s armed forces aren’t suffering from lack of equipment and that the “fundamental problem” in Ukraine over the past weeks has been “about the capacity to act.”

“I don’t think the Ukrainian authorities will decide on a massive use of force,” he said today on Radio RMF FM. “There’s a battle going on for hearts and minds in eastern Ukraine and excessive use of force will discredit anyone who uses it.”

Election Risk

The fighting in Ukraine’s eastern regions threatens to undermine the May 25 presidential election, Chris Weafer, a partner at Moscow-based Macro Advisory, said in an e-mail.

Unless the government “can regain control over all cities in east Ukraine by May 25, the separatists will not accept the election,” Weafer said. “That may lead to an intensification of the violence as the newly elected president would have to quickly choose between heavier military intervention or negotiations.”

Barbara von Ow-Freytag, who advised the German government from 2008 to 2013 on Russian issues, said Putin’s main goal isn’t a full-blown invasion of Ukraine.

“Putin’s top priority is to disrupt the May 25 vote in order to deny Ukraine a legitimate government,” von Ow-Freytag said in a phone interview. “So the top goal for the EU and U.S. must be to ensure elections take place and run smoothly.”

In Odessa, 42 people were killed and 125 injured May 2 after Russian sympathizers took refuge in a building that was later engulfed by fire. They were seeking to escape fighting between soccer fans and supporters of the Kiev government on one side and Russia backers on the other.

‘Bloodstained Hands’

Four others also died in recent clashes in Odessa, acting President Oleksandr Turchynov said on television yesterday without specifying the causes of death.

The authorities in Kiev have their hands “stained with blood,” Peskov said in a conference call with reporters yesterday. “Nationalists and radicals, with the complicity of local authorities and those who consider themselves to be in power in Kiev, burned unarmed people alive.”

Ukrainian prosecutors started a probe into the incident and will “investigate everyone,” Yatsenyuk told the BBC.

Russian citizens took part in provocations before the bloodshed in Odessa, the Ukrainian Foreign Ministry said in a website statement. Their aim was to destabilize the region, the ministry said, citing what it said was information from detained Russian citizens.

Economic sanctions imposed on Russia by the U.S. and EU have so far targeted officials, individuals and companies tied to Putin’s inner circle. The next step would be action against Russian industries, including banking and energy.

To contact the reporters on this story: Volodymyr Verbyany in Kiev at vverbyany1@bloomberg.net; Stephen Bierman in Moscow at sbierman1@bloomberg.net; Daria Marchak in Kiev at dmarchak@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net Leon Mangasarian