War Premia: Geo-political tensions boil crude Oil prices

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Heightened tensions between Russia and Ukraine pushed global crude oil prices to around $95 per barrel on Tuesday.

Accordingly, the Brent-indexed crude oil prices crossed $95 per barrel, the highest in several years.

Crude oil prices inclined to a multi-year high level as Russian President Vladimir Putin ordered the deployment of troops into two separatist areas within Ukraine.

On Monday, Russia recognised the two separatist regions’ independence, a move that some fear puts Ukraine and Russia one step closer to a military conflict.

Significantly, Russia is one of the world’s top producers of crude oil. Any western sanctions against Russia will stiffen the global supply of crude oil

Besides, the development also assumes significance for India as it is import-dependent to fulfil its crude oil needs.

Notably, the rise in crude oil prices can escalate domestic prices thereby triggering inflation.

“Brent Crude oil prices are trading above $95 per barrel on back of the escalating geopolitical tension and low supplies,” IIFL Securities VP, Research, Anuj Gupta, said

“We are expecting prices to test $100 per barrel mark.”

According to Tapan Patel, Senior Analyst (Commodities), HDFC Securities: “Crude oil prices rallied with benchmark WTI crude oil prices surged by more than 2 per cent to $93 per barrel on Tuesday.

“Crude oil prices gained after US and European Union vowed for sanctions on Russia which raised market risk premium into oil prices.”

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