Citigroup analysts have laid out what is at stake in yesterday’s crucial referendum in Crimea, as the tussle between Russia and Ukraine over the territory continues to add to risks in global markets.

Citigroup analysts have laid out what is at stake in yesterday’s referendum in Crimea, as the tussle between Russia and Ukraine over the territory continues to add to risks in global markets. (According to media reports, those who voted chose by a massive 90 per cent margin to join Russia and leave Ukraine.)

Ukrainian acting defence minister Ihor Tenyukh is reported to have said that Russian troop numbers in Crimea were now almost double the level agreed with Moscow, and Kiev's forces were taking "appropriate measures" along the border with Russia. He rejected the suggestion that a militarily and economically weakened Ukraine might give up in the face of the Russian power, according to Reuters.

Citigroup, meanwhile, was taking a cautious stance on the issue in terms of what the result means for business and markets.

"Russia has framed its support for Crimean independence in parallel to Western support for Kosovo's independence from Serbia, a move which was later enshrined in a 2010 decision by the European Court of Justice. Senior Russian officials have also made comparisons of Ukraine's importance to Russia as exceeding that of the Falkland Islands to the United Kingdom. One compared the situation to the Comoro Islands’ secession from France," the bank said.

In a note on the same issue late last week, it said: “Sunday’s referendum in Crimea (March 16) could mark a pivotal geopolitical moment. While we continue to regard the risk of military conflict or major economic sanctions as low at this stage, US and EU efforts to bolster Ukraine’s interim government could keep tensions between Russia and the West high for an extended period, while Ukraine’s internal security situation remains delicate,” the bank said in a note issued late last week.

“Although global markets have largely shrugged off geopolitical risks, we remain cautious. We expect that Sunday’s referendum will pass, but could prompt an escalation of tensions. Renewed ethnic clashes could be a catalyst for Russian military intervention beyond Crimea, while the revival of negotiations for an EU Association Agreement could also inflame Russian concerns. The situation remains highly fluid - and combustible - posing a significant challenge to security and diplomacy. Media reports of massing Russian troops could add to regional and market jitters. A key positive signpost would be a shift in stance from Moscow, which has thus far declined to negotiate with the new government in Kiev,” it said.

“Proposed US and EU sanctions focus on individuals regarded as responsible for `infringements on Ukrainian sovereignty,’ but not measures on Russian corporate or state institutions, financial transactions or cross-border trade. Although modest, such measures could nevertheless prompt a reaction from Moscow, based on the response to the 2012 Magnitsky Act,” it said.

“Beyond sanctions, US and EU support for Ukraine’s interim government is gathering momentum, with the White House hosting Ukrainian PM Yatseniuk this week. The US House has passed a $1 billion loan guarantee package, while the Senate Foreign Relations Committee has passed a sanctions-and-aid package, to include $50 million for `democracy assistance’ and $100 million in security funds. Though there have been media reports of possible `Iran-style’ sanctions on the Russian banking sector, no bill has been proposed. Barring a significant escalation in tensions, we regard sanctions on Russia’s hydrocarbons sector as highly unlikely given the economic damage it would inflict on EU member states,” the bank continued.

Citigroup concluded: “The EU has promised an aid package worth €3 billion ($4.17 billion) made up of grants and loans to be disbursed over the next two years as well as €8 billion worth of project funding over a longer horizon from the EIB and the EBRD. Perhaps coincidentally, this is roughly the same amount as the $15 billion bond purchase program promised by Russia, of which only $3 billion were disbursed. EU grants and loans require a disbursing IMF program to be in place. We therefore expect an early IMF Rapid Funding Instrument activation, followed by a full Stand-By arrangement in the second half of the year. It is possible but not, in our view, likely that the IMF will require sovereign debt restructuring as a precondition for an SBA.”