Most major indexes across Europe saw red arrows Friday, with Russia sinking the most after the country's prime minister launched an attack on a steel giant.
MICEX, the exchange where the bulk of trading in Russian stocks takes place, plunged 5.5 percent, while the RTS, a leading index, lost 5.6 percent at 1,951.29, sinking beneath the critical 2000-point barrier for the first time since March.
After Prime Minister Vladimir Putin's scathing attack on Mechel late Thursday, heavy trading in New York sent the steel and coal maker's stock down nearly 40 percent, wiping more than $5 billion off its value. The losses were mirrored Friday morning in Russian trading.
Putin criticized the company, which is the largest supplier of coal for steelmakers in Russia, for charging much higher prices for raw materials domestically than it does for its exports. He called for an antitrust investigation into Mechel's activities.
Earlier Thursday Robert Dudley, CEO of the embattled Anglo-Russian oil producer TNK-BP, left the country three days before his visa was due to expire. Russia has not renewed the visa on the ground that he allegedly does not have a valid work contract.
Dudley, who said in a statement his departure follows a sustained assault on the company in the past several months, vowed to run the company from abroad.
The developments rattled investors, leading to a heavy sell-off in Russian equity, which is dominated by oil stocks.
"Sentiment is moving against Russia," said James Fenkner, managing partner at Red Star Asset Management in Moscow. "If oil has any kind of bounce, the market will look kindly on Russia. If oil (prices) begin to slip, there will be a great unwind."
Observers say soaring oil prices have largely masked the political tensions, and investors are tensely watching how the corporate conflict plays out at TNK-BP, widely seen as a test case for foreign investment under new President Dmitry Medvedev.