Russian President Vladimir Putin has signed a decree officially recognising the breakaway republics of Luhansk and Donetsk as independent from Ukraine. This represents a significant escalation in the Ukraine crisis and is likely to be met with sanctions by Nato and its partners, interrupting moves to broker a peace deal.

Russia is the only country in the world to recognise the two territories as independent. The decision was immediately condemned by Western leaders.

The move could also be a precursor for Moscow to move troops into the breakaway republics to "protect" them from Ukraine, increasing the likelihood of a full-scale conflict between Moscow and Kyiv.

In a national address after a rare televised meeting of the Security Council, Putin called Ukrainians "our relatives, people connected to us by blood" but also insisted that "modern Ukraine was entirely created by Russia". Putin also claimed that "the Maidan [revolution] didn't bring Ukraine closer to democracy", and that "we know the names [of the Maidan perpetrators] and we will punish them".

In advance of his announcement, Putin warned the French and German leaders Emmanuel Macron and Olaf Scholz of his decision by phone, the Kremlin said in a statement on 21 February. The two leaders were disappointed, but expressed the desire for continued communication with Russia, according to the Kremlin.

The two separatist-controlled republics in Eastern Ukraine have been the focal point of significant tensions in recent months as Russia and Ukraine mobilise troops on either side of the border. The US has estimated that Russia has as many as 190,000 troops on the borders of Ukraine, and Britain has warned that Russia’s “plan has already been implemented”, implying that orders have been given to invade.

Border incidents have increased in recent weeks and the two rebel republics have moved civilians away from the front line, claiming that Ukraine has attacked them and is poised to invade. Putin recently stated that he considers a genocide is taking place in Eastern Ukraine. He did not provide evidence for his assertion.

Leaders of the separatists in Luhansk and Donetsk, who claims their entire regions as independent entities, had appealed to Putin to recognise their territories as independent. This is not the first time that Putin has recognised separatist-held territories of neighbouring countries as independent. Putin also recognised South Ossetia and Abkhazia as independent from Georgia in 2008. Russia has already offered residents of the two Ukrainian self-styled republics Russian citizenship and passports.

Skirmishes between separatists and the Ukrainian military have been going on in the Donbas region since 2014, but a larger conflict has been contained by the Minsk Agreements, which state that both Russia and Ukraine must withdraw troops from the areas and that Ukraine must discuss questions of governance with the leaders of Donetsk and Luhansk.

Putin’s announcement is designed to put maximum pressure on Ukraine’s President Volodymyr Zelenskiy, who has been resisting calls to implement the agreement. As bne IntelliNews has reported, both Macron and Scholz have visited Zelenskiy recently and tried to persuade him to implement the agreement. Zelenskiy has rejected the Western pressure and lambasted the Minsk deal as “vapid” last week. Fighting in the Donbas immediately flared and has culminated in Putin’s decision now.

Putin’s decision was telegraphed, as it follows on from a new law passed by the Duma clearing the way for the recognition five days ago. The motion called on the president to recognise the two areas as independent, but it was not binding. The appeal handed the decision over to Putin, allowing him to recognise Luhansk and Donetsk as independent or to turn down Parliament’s request at his discretion.

In his publicly broadcasted meeting of his Security Council, Putin asked for advice on whether or not to recognise the two cities as independent.

Foreign Minister Sergei Lavrov said “I see no other solution”. Meanwhile, Director of the Foreign Intelligence Service Sergey Naryshkin called for “joining the DNR and LNR to the Russian Federation”, which Putin dismissed, saying “we aren’t discussing that”.

Deputy Kremlin Chief of Staff Dmitriy Kozak was asked by Putin whether Ukraine was willing to uphold its side of the Minsk Agreements, and replied that “under normal circumstances they will not do this… never. They do not want to.”

By recognising the self-proclaimed “Luhansk People’s Republic” and “Donetsk People’s Republic” as independent, Russia is breaking the terms of the Minsk II Agreement, which is likely to result in further escalation, and likely sanctions on Russia from Nato and its partners. But some Nato members and allies, including the EU, have yet to agree what sanctions would be imposed in response to such a move that falls short of a full invasion.

Prime Minister Mikhail Mishustin told Putin that the risks of sanctions have been considered, implying that this decision has been in the pipeline for a while. “We have already been preparing many months for the possible response to the recognition of LPR and DPR,” Mishustin said.

If Russia were to abandon the Minsk II Agreements, it may well necessitate the negotiation of further peace agreements governing peace in the Donbas region – a "Minsk III". This is also what Zelenskiy called for at the Munich Security Conference on Saturday. He asked allies to help him negotiate a new deal for security in Europe, saying that “the rules that the world agreed on decades ago no longer work. They do not keep up with new threats.”

However, Russia's decision to recognise the rebel republics may pose a serious obstacle to any resumption of talks between Putin and US President Joe Biden. Russian veteran Foreign Minister Sergey Lavrov is due to meet again with his counterpart US Secretary of State Antony Blinken later this week.

Macron was also on the phone over the weekend trying to organise a new summit between Putin and Biden. The Kremlin did not immediately back a meeting, while the White House said it was open to the meeting, but remained vague, saying that a meeting was only possible if Russia didn't invade Ukraine. It is not clear how or if its position on the meeting will change following Putin’s announcement.