By Geoffrey Smith
Investing.com -- Two Russian-backed regions in eastern Ukraine announced on Tuesday they will hold referenda on joining the Russian Federation this weekend, amid signs in Moscow that Russia is preparing to move to annex the areas of Ukraine its forces currently hold.
Russian President Vladimir Putin is set to address the nation later Tuesday, the news agency RBC reported, after the self-appointed governments of the so-called Donetsk and Luhansk People's Republics and two more regions of Ukraine currently under Russian military occupation said they would hold referenda between September 23rd and 27th on joining the Russian Federation.
Tuesday's actions appear to herald a new escalation of the conflict in Ukraine that has roiled world markets since February. The referenda, if carried out, are certain to be condemned by Ukraine and by its western backers as illegitimate but may serve as a pretext for Russia to claim that Ukraine had carried the war onto its own territory, and escalate its actions accordingly.
The developments come on the same day that Russia's parliament, or Duma, implemented a number of ominous changes to the Russian criminal code, inserting new provisions for desertion and unauthorized surrender during times of "mobilization or other hostilities."
Former President and Prime Minister Dmitry Medvedev, who is now a joint chair of the National Security Council, said in a Telegram post that annexation would represent "the restoration of historical justice" and warned that Russia - the world's second largest nuclear power after the U.S. - would use "all its powers of self-defense" against anyone "encroaching" on its territory.
"Since Feb 24 [the day of Russia's invasion] we've treated people like former President Medvedev like random noise-generating clowns. But I would pay attention today," said Andrew Weiss, an analyst with the Carnegie Endowment for International Peace in Washington, D.C.
Putin's government has come under increasing pressure from hardliners in the last few weeks for what has been an unsuccessful attempt to secure military victory without mobilizing the whole of Russian society and its economy. He has also appeared under pressure from important foreign trade partners such as China and India, whose "concerns" he was forced to acknowledge publicly at a meeting of leaders in central Asia last week.
That meeting came only days after the course of Russia's war in Ukraine appeared to shift dramatically in Ukraine's favor: a successful counterattack by Kyiv's forces recaptured thousands of square miles of territory around the eastern city of Kharkiv, threatening the supply lines of Russia's troops in Donetsk, Luhansk and further to the west and south.
Russia's benchmark stock index lost as much as 10% in morning trading in Moscow before paring its losses. However, the ruble was stable at just below 60 to the dollar. The ruble market has been dominated by the central bank since February when it intervened heavily to stop undesired volatility.