Stepping back from the brink of war, Vladimir Putin talked tough but cooled tensions in the Ukraine crisis, saying Russia has no intention "to fight the Ukrainian people" but reserves the right to use force.
But tension remained high on the ground. Russian forces fired warning shots in a confrontation with Ukrainian servicemen at an air base, and Russian navy ships were reported to have blockaded the strait separating the Ukrainian Black Sea peninsula from Russia.
At his first news conference since the crisis began, Putin said Russia reserved the right to use all options to protect compatriots who were living in ‘‘terror’’ in Ukraine but that force was not needed for now.
As the Russian president held court in his personal residence, US Secretary of State John Kerry met with Kiev's fledgling government and urged Putin to stand down.
"It is not appropriate to invade a country, and at the end of a barrel of a gun dictate what you are trying to achieve," Kerry said. "That is not 21st-century, G-8, major nation behaviour."
Although nerves remained on edge in the Crimean Peninsula, with Russian troops firing warning shots to ward off Ukrainian soldiers, global markets jumped higher on tentative signals that the Kremlin was not seeking to escalate the conflict. Kerry brought moral support and a US$1 billion (NZ$1.2b) aid package to a Ukraine fighting to fend off bankruptcy.
Lounging in an arm-chair before Russian tricolor flags, Putin made his first public comments since the Ukrainian president fled a week and a half ago. It was a signature Putin performance, filled with earthy language, macho swagger and sarcastic jibes, accusing the West of promoting an "unconstitutional coup" in Ukraine. At one point he compared the US role to an experiment with "lab rats".
But the overall message appeared to be one of de-escalation. "It seems to me (Ukraine) is gradually stabilising," Putin said. "We have no enemies in Ukraine. Ukraine is a friendly state."
Still, he tempered those comments by warning that Russia was willing to use "all means at our disposal" to protect ethnic Russians in the country.
Significantly, Russia agreed to a NATO request to hold a special meeting to discuss Ukraine on Wednesday in Brussels, opening up a possible diplomatic channel in a conflict that still holds monumental hazards and uncertainties. At the same time, the US and 14 other nations formed a military observer mission to monitor the tense Crimea region, and the team was headed there in 24 hours.
While the threat of military confrontation retreated somewhat, both sides ramped up economic feuding. Russia hit its nearly broke neighbour with a termination of discounts on natural gas, while the US announced a $1 billion aid package in energy subsidies to Ukraine.
"We are going to do our best. We are going to try very hard," Kerry said upon arriving in Kiev. "We hope Russia will respect the election that you are going to have."
Kerry also made a pointed distinction between the Ukrainian government and Putin's.
"The contrast really could not be clearer: determined Ukrainians demonstrating strength through unity, and the Russian government out of excuses, hiding its hand behind falsehoods, intimidation and provocations. In the hearts of Ukrainians and the eyes of the world, there is nothing strong about what Russia is doing."
The penalties proposed against Russia, he added, are "not something we are seeking to do. It is something Russia is pushing us to do."
World markets, which slumped the previous day, clawed back a large chunk of their losses on signs that Russia was backpedaling. Gold, the Japanese yen and US treasuries — all seen as safe havens — returned some of their gains. Russia's RTS index, which fell 12 percent on Monday, rose 6.2 per cent Tuesday. In the US, the Dow Jones industrial average closed up 1.4 per cent.
"Confidence in equity markets has been restored as the standoff between Ukraine and Russia is no longer on red alert," said David Madden, market analyst at IG.
Russia took over the strategic Crimean Peninsula on Saturday, placing its troops around its ferry, military bases and border posts. Two Ukrainian warships remained anchored in the Crimean port of Sevastopol, blocked from leaving by Russian ships.
"Those unknown people without insignia who have seized administrative buildings and airports ... what we are seeing is a kind of velvet invasion," said Russian military analyst Alexander Golts.
The territory's enduring volatility was put in stark relief Tuesday morning: Russian troops, who had taken control of the Belbek air base, fired warning shots into the air as some 300 Ukrainian soldiers, who previously manned the airfield, demanded their jobs back.
As the Ukrainians marched unarmed toward the base, about a dozen Russian soldiers told them not to approach, then fired several shots into the air and said they would shoot the Ukrainians if they continued toward them.
The Ukrainian troops vowed to hold whatever ground they had left on the Belbek base.
"We are worried, but we will not give up our base," said Captain Nikolai Syomko, an air force radio electrician holding an AK-47.
Amid the tensions, the Russian military test-fired a Topol intercontinental ballistic missile. Fired from a launch pad in southern Russia, it hit a designated target on a range leased by Russia from Kazakhstan.
The new Ukrainian leadership in Kiev, which Putin does not recognise, has accused Moscow of a military invasion in Crimea, which the Russian leader denied.
Ukraine's prime minister expressed hope that a negotiated solution could be found. Arseniy Yatsenyuk told a news conference that both governments were gradually beginning to talk again.
"We hope that Russia will understand its responsibility in destabilising the security situation in Europe, that Russia will realise that Ukraine is an independent state and that Russian troops will leave the territory of Ukraine," he said.
In his hour-long meeting with reporters, Putin said Russia had no intention of annexing Crimea, while insisting its residents have the right to determine the region's status in a referendum later this month. Tensions "have been settled," he declared.
He said massive military manoeuvres Russia has conducted involving 150,000 troops near Ukraine's border were previously planned and unrelated to the current situation in Ukraine. Russia announced that Putin had ordered the troops back to their bases.
Putin hammered away at his message that the West was to blame for Ukraine's turmoil, saying its actions were driving Ukraine into anarchy. He warned that any sanctions the United States and European Union place on Russia will backfire.
American threats of punitive measures are "failure to enforce its will and its vision of the right and wrong side of history," Russia's Foreign Ministry said — a swipe at President Barack Obama's statement a day earlier that Russia was "on the wrong side of history."
In Washington, Obama shot back. Moves to punish Putin put the US on "the side of history that, I think, more and more people around the world deeply believe in, the principle that a sovereign people, an independent people, are able to make their own decisions about their own lives."
"And, you know, Mr. Putin can throw a lot of words out there, but the facts on the ground indicate that right now he is not abiding by that principle," Obama said.
A senior administration official said Obama spoke to German Chancellor Angela Merkel on Tuesday and discussed a potential resolution to the crisis.
The official said Obama, in his phone call with Putin last Saturday, had discussed what officials called an off-ramp to the crisis in which Russia would pull its forces in Crimea back to their bases and allow international monitors to ensure that the rights of ethnic Russians are protected.
The US president will not attend a G8 summit scheduled for Sochi, Russia, in June unless there is a Russian reversal in the Ukraine crisis, the official added.
The EU was to hold an emergency summit Thursday on whether to impose sanctions.
Moscow has insisted that the Russian military deployment in Crimea has remained within the limits set by a bilateral agreement concerning Russia's Black Sea Fleet military base there. At the United Nations, Russia's ambassador to the UN, Vitaly Churkin, said Russia was entitled to deploy up to 25,000 troops in Crimea under that agreement.
Putin also asserted that Ukraine's 22,000-strong force in Crimea had dissolved and its arsenals had fallen under the control of the local government. He didn't explain if that meant the Ukrainian soldiers had just left their posts or if they had switched allegiance from Kiev to the local pro-Russian government.
Putin accused the West of using fugitive President Viktor Yanukovych's decision in November to ditch a pact with the EU in favour of closer ties with Russia to fan the protests that drove him from power and plunged Ukraine into turmoil.
"I have told them a thousand times 'Why are you splitting the country?'" he said.
While he said he still considers Yanukovych to be Ukraine's legitimate president, he acknowledged that the fallen leader has no political future — and said Russia gave him shelter only to save his life. Ukraine's new government wants to put Yanukovych on trial for the deaths of over 80 people during protests last month in Kiev.
Putin had withering words for Yanukovych, with whom he has never been close.
Asked if he harbours any sympathy for the fugitive president, Putin replied that he has "quite opposite feelings".