Russian stocks crash on signs Putin may escalate Ukraine war with military mobilization and Ukraine annexation

• Russian stocks plunged Tuesday on signs that Moscow may escalate its war on Ukraine.
• Lawmakers are advancing legislation to heighten punishments for military crimes, raising fears of full mobilization.

Russian stocks fell Tuesday on signs that President Vladimir Putin could escalate his war on Ukraine after his military suffered a stunning rout earlier this month.

New legislation in Russia's parliament would heighten punishment for military crimes, such as desertion, damage to military property, and insubordination, raising fears it could lead to a full mobilization later.

Some hard-line lawmakers have been calling for an expansion of the military draft since it gave up huge swaths of territory in eastern Ukraine.

Meanwhile, Moscow moved to hold sham referendums to fully annex occupied territory in eastern and southern Ukraine. While annexation wouldn't be recognized as legal, it raises the prospect that any attacks on Russian forces there could be claimed as attacks on Russian soil, potentially escalating the war.

The ruble-denominated MOEX stock index tumbled 8.7% to hit the lowest point since August 16, while the dollar-denominated RTS stock index sank 9.2%.

Russia's potential move to annex occupied Ukrainian territory is a sign of a stark escalation of the conflict with Kyiv, dashing hopes that the war could find an end sooner than previously thought thanks to Ukraine's strong counter-offensive and steep Russian military losses.

Putin is now seemingly doubling down on the Ukraine invasion with the potential legislation, further strengthening his grip on a war effort that seems to be slipping away in its sixth month.

He also called for Russia's defense industry to increase its output of weapons. Meanwhile, Russia's finance ministry is considering plans to raise taxes on energy exports, Kommersant reported, as the Kremlin looks to shore up its budget and war chest amid Western sanctions.