ADDIS ABABA (BLOOMBERG) - Thousands of people fled violence in northern Ethiopia, where the government said it's killed at least 550 fighters in a week of clashes with forces loyal to the Tigray region's rebellious ruling party.
Almost 7,000 refugees have arrived at Ethiopia's border with Sudan, some of them combatants, said Ms Ann Encontre, a country representative for the United Nations Refugee Agency.
The authorities are registering people before allowing them to travel to a refugee camp in the south-eastern Sudanese town of Gedaref, she said by phone on Wednesday (Nov 11).
Officials are "disarming combatants before letting them in", Ms Encontre said.
Fighting erupted on Nov 4 after Prime Minister Abiy Ahmed ordered soldiers to retaliate for an alleged attack on a federal army camp.
Mr Abiy accused the region's ruling Tigray People's Liberation Front of carrying out the raid - a claim denied by the TPLF.
Relations between Tigray and the federal government have been strained since Mr Abiy took office in 2018 and sidelined the party, once the pre-eminent power broker in Ethiopia.
Last month, the federal Parliament ordered the Treasury to halt direct budgetary support to the Tigrayan administration for defying an order to postpone regional elections.
Mr Abiy has so far ignored international calls for restraint - the latest being an appeal by African Union Commission Chairman Moussa Faki Mahamat on Wednesday for an immediate end to hostilities.
Air strikes will continue in the region, with care being taken to avoid civilian casualties, Abiy's office said on Thursday.
"Some of our international partners, friends and people of good will have expressed a concern that this might turn into an all-out war," it said in an e-mailed statement.
"We want to make clear to you that this operation will end within a short time, and we shall soon return back to our normal daily life."
The conflict has spilled over into neighbouring Eritrea, said Mr Redwan Hussein, Ethiopia's state minister of foreign affairs.
Federal troops briefly retreated across the border when they clashed with TPLF forces earlier this week, before beginning a counter-offensive.
Separately, Tigray President Debretsion Gebremichael accused Eritrea of sending its own soldiers across the frontier to attack his troops.
Eritrea gained independence from Ethiopia in 1991 and the two nations fought a border war between 1998-2000 in which tens of thousands of people died.
The conflict didn't officially end until two years ago, when Mr Abiy signed a peace accord with Eritrean President Isaias Afwerki - an action for which Mr Abiy received the Nobel Peace Prize.
Mr Isaias has long been at odds with Tigray's leaders, who effectively ruled Ethiopia from 1991 until 2018.
Eritrean Information Minister Yemane Gebremeskel didn't answer phone calls seeking comment.
The showdown has spooked investors who've been pouring money into Ethiopia since Mr Abiy took power and began opening up the state-controlled economy.
The yield on Ethiopia's US$1 billion (S$1.35 billion) of 2024 Eurobonds has climbed for five straight days, rising 124 basis points since Nov. 3 to 7.49 per cent.
"If the Ethiopian offensive into Tigray stalls or fails, Prime Minister Abiy Ahmed will face a severe threat to his own authority from disgruntled military officers that could also fracture the country's federation," said Mr Robert Besseling, executive director of political risk advisory firm EXX Africa.
The violence in Ethiopia is taking on an increasingly ethnic dimension.
Militia from the neighbouring Amhara region are being bussed to the border with Tigray and are engaging in fighting, said two people who asked not to be identified because they're not authorised to speak to the media.
Amhara and Tigray have a history of disputes over land - Amhara has claimed that several key zones, including the Wolqait and Raya areas, were annexed by Tigray when the current Ethiopian federation was mapped out in the early 1990s.
Mr Abiy's spokeswoman, Ms Billene Seyoum, referred a request for comment to the army, while Mr Redwan, who chairs the government's emergency task force, didn't answer calls seeking comment.