West, Russia clash over Crimea as markets fall

KIEV, Mar 3 (AFP): Russia cemented its control of the flashpoint Crimean peninsula without firing a shot as markets plunged on Monday and world leaders held a series of crisis talks over the worst standoff between Moscow and the West since the Cold War.

The price of oil surged on fears of an all-out conflict as Russia looked set to send troops into eastern parts of Ukraine, an area with close ties to Russia that the Kremlin has vowed to protect from "ultranationalist forces".

British Foreign Secretary William Hague opened talks with Ukraine's Western-backed but untested interim leaders a day after the world's top industrialised powers threatened to strip Russia of its coveted seat at the Group of Eight for menacing its ex-Soviet neighbour.

Germany offered a rare glimmer of hope by announcing that Russian President Vladimir Putin had agreed in telephone talks with Chancellor Angela Merkel late Sunday to set up a contact group on Ukraine.

Western allies in the North Atlantic Treaty Organisation also said they wanted to send international observers to Ukraine while engaging Moscow in direct talks.

Washington added it would like to see a mission from the Organisation for Security and Cooperation in Europe (OSCE) deployed in the nation of 46 million "immediately". The OSCE president said it wanted the mission to investigate "incidents" in Ukraine.

Russia offered no immediate response to any of the proposals -- all backed by Kiev's interim leaders who are trying to pull Ukraine closer to the European Union after replacing the deposed and largely exiled regime of pro-Kremlin president Viktor Yanukovych.

A crisis on the eastern edge of Europe that threatens to blow up into the biggest test of Moscow's relations with the West since the height of the Cold War also saw world powers promise to deliver urgent aid to try to prevent Ukraine's teering economy going into default within days.

Crimea itself, which has housed Russian navies since the 18th century, is now almost under complete control of Russian forces and local pro-Kremlin militia who patrol both government buildings and the perimeters of Ukrainian military installations on the rugged Black Sea peninsula.