(Bloomberg) — Oil and gold rose after Russian President Vladimir Putin announced that he’s recognizing two self-proclaimed separatist republics in eastern Ukraine and plans to send “peacekeeping forces” to the region in a dramatic escalation of the conflict.
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West Texas Intermediate climbed more than 3% from Friday, after not closing Monday due to a U.S. holiday, to above $93 a barrel, while gold touched an eight-month high. There were no details on how many Russian troops might go in, or when. Moscow has previously accused Ukraine of having a significant deployment of its own soldiers on the line of contact with the separatists in the Donetsk and Luhansk regions.
Geopolitical tensions in eastern Europe and the Middle East have roiled markets and pushed oil closer to $100 a barrel. A conflict in Ukraine or retaliatory sanctions would potentially upend flows of commodities including oil, gas, aluminum and wheat. Rising demand and shrinking global inventories of crude and petroleum products have added to the rally, while hopes of additional supply from Iran hang in the balance as nuclear negotiations drag on.
“Ukraine is going to dominate the volatility in short term market moves this week,” Jeffrey Halley, senior market analyst at Oanda Asia Pacific Pte. “Oil is going to trade above $130 if the tanks rolls across the Ukrainian border. That would be bad for equities but great for gold.”
While gold benefited from its role as a haven in times of geopolitical turmoil, cryptocurrencies tumbled, undermining the argument that they can fulfill the same role. Bitcoin dipped below the $40,000 level over the weekend and kept weakening as the Ukraine crisis deepened.
See also: Oil Market on Edge as Traders Assess Russia’s Fuel Influence
Chicago wheat futures jumped to a near one-month high as trading resumed after a U.S. holiday. Russia and Ukraine account for a quarter of global trade in the grain and a fifth of corn sales. There’s concern that an escalation could disrupt Black Sea shipments at a time when world food costs are already at a decade high.
While Russia will argue that Putin’s recognition of the regions gives a legal basis for the presence of its troops, the move will likely fuel U.S. and European concerns that Moscow is moving to take control of territory internationally recognized as part of Ukraine, and would put his forces closer to direct confrontation with Ukrainian soldiers. Meanwhile, the United Nations’ decision-making body, the UN Security Council, is holding an emergency meeting on Ukraine.
The Biden administration has warned Russia’s troop buildup near Ukraine signals a possible invasion, something the Kremlin has repeatedly denied. The U.S. is moving all State Department personnel and its embassy out of Ukraine and into Poland citing security reasons after Putin’s latest action. U.S. officials intend for the personnel to return Tuesday morning if there is no invasion by Russia.
Oil was also boosted Monday after Saudi Aramco said it sees signs that demand is rising, especially in Asia. Several of OPEC+’s biggest producers want the group to continue with its strategy and add another 400,000 barrels a day of crude to the market in April, according to people familiar with the matter. That comes despite calls for OPEC+ to increase output faster amid tight supplies.
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