Stocks slumped and oil surged to its highest in seven years on Tuesday as Europe’s eastern flank stood on the cusp of war after Russian President Vladimir Putin ordered troops into two breakaway regions of eastern Ukraine.

The broader Euro STOXX 600 fell as much as 1.9 percent to a seven-month low before clawing back some of its losses. German stocks- seen as more vulnerable due to the country’s heavy reliance on Russian gas supplies - dropped more than 2 percent.

The United States and its European allies are poised to announce harsh new sanctions against Russia on Tuesday after Putin formally recognised the breakaway regions in eastern Ukraine, escalating a security crisis on the continent.

The Ukrainian military said two soldiers were killed and 12 wounded in shelling by pro-Russian separatists in the east in the past 24 hours, the most casualties this year, as ceasefire violations increased.

The prospect of a major European war saw investors dump stocks and riskier assets, while metals soared.

Brent crude futures jumped more than $3, or 2.5 percent, to $99, its highest since September 2014, on worries Russia’s energy exports could be disrupted.

Benchmark government debt and gold were also in demand. German government bond yields hit their lowest level since February 4, while spot gold added 0.1 percent to $1,908, having earlier hit a new six-month top of just under $1,913.

The MSCI world equity index, which tracks shares in 50 countries, fell 0.4 percent to its lowest since January 28.

“Europe is in a very, very uncomfortable situation,” said Michael Hewson, chief markets analyst at CMC Markets. “What you’re getting is a classic risk-off play here.”

US markets were also braced for losses, with S&P 500 futures down 1.4 percent and Nasdaq futures off 2.1 percent.

MSCI’s broadest index of Asia Pacific shares outside Japan had earlier fallen 1.5 percent.

“We can be pretty confident that this will put upward pressure on oil markets and will be watching gas prices pretty nervously as we wait to see what sanctions are introduced,” said Kit Juckes, macro strategist at Societe Generale.

Metals shine

Putin on Monday recognised two breakaway regions in eastern Ukraine as independent and ordered the Russian army to launch what Moscow called a peacekeeping operation into the area.

Washington and European capitals condemned the move, vowing new sanctions. Ukraine’s foreign minister said he had been assured of a “resolute and united” response from the European Union.

Fears of supply disruption from Russia sent London-traded aluminium to a more than 13-year high of $3,350 a tonne while benchmark nickel hit the highest since August 2011. Shanghai traded nickel hit a record high .

The Russian rouble hit a 15-month low early in Asian trading, hurtling below 80 against the dollar before steadying.

The rouble has lost 12 percent on prospects of a Ukraine invasion, with Russian equities down by a third.

Other currencies were quieter as traders awaited news of sanctions.

The Japanese yen erased earlier gains that took it close to a three-week high of 114.48 per dollar, while the Swiss franc was holding steady near the previous day’s one-month high.

The euro recovered to trade flat after earlier falling to a one-week low of $1.1286. The single currency hit its most volatile since November 2020.

The US dollar index held at 96.080.