The Dow Jones industrial average had sunk 188 points, or 1.1 percent to 16,133, as of 1:48 p.m. ET. The Nasdaq lost 44 points, to 4,264, while the Standard & Poor's 500 was also down.
After moving to occupy Crimea last week, Russian troops demanded that Ukrainian forces leave an air base on the strategic peninsula, CBS News reported Monday. Ukraine's defense minister also said Russian navy ships were blocking Ukrainian warships.
The standoff is spurring investors to move into safer assets, driving up U.S. Treasury and commodity prices. Gold rose to $1,355, a four-month high, while gold stocks also rose.
The price of crude oil rose more than 2 percent amid concerns that Russian energy exports could be disrupted. Roughly a fifth of Russian energy flowing to the European Union passes through Ukraine, while Ukraine itself relies on its Slavic neighbor for half its gas supplies.
Major financial markets in Europe also dropped. Stocks in Russia took the biggest hit, while Germany's DAX lost 272 points, or 2.8 percent, and Britain's FTSE fell 100 points. Stocks in Poland, which shares a border with Ukraine, declined more than 5 percent.
For Ukraine, perhaps the greatest risk is that it could struggle to raise enough capital to service its external debts, said Lilit Gevorgyan, a risk analyst with IHS Global Insight, in a note to clients. That risk could rise if Russia pressures Ukraine to immediately repay $1.5 billion in gas arrears for 2013 and 2014, she added. Moscow could also rescind a large discount on gas prices it agreed to provide Ukraine in December.
While the tension in Ukraine roiled markets, some experts predicted that the volatility could ease fairly quickly.
"We expect these market impacts to be temporary unless Russian invades the rest of the Ukraine," said economists with PNC Financial Services Group in a research note.