Russia is the world’s biggest oil producer and Ukrainian Prime Minister Arseny Yatseniuk said Moscow’s move to use military force was a “declaration of war”.
Putin secured permission from his parliament on Saturday to use military force to protect Russian citizens in Ukraine and told US President Barack Obama he had the right to defend Russian interests and nationals, spurning Western pleas not to intervene.
Brent crude traded at $111.27 per barrel at around 1100 GMT on Monday, its highest since 2 January.
US crude futures traded up $1.62 at $104.21 at 1100 GMT after earlier jumping as much as $2.06 to $104.65 a barrel, the highest since 23 September.
“This is all about risk to supplies,” commented Commerzbank senior oil and commodities analyst Carsten Fritsch in Frankfurt.
“Russia is one of the world’s largest oil producers, a huge exporter, and very important to Europe for its energy security,” he said.
Ben Le Brun, a market analyst at OptionsXpress in Sydney, said that “oil markets are reacting on the potential that the situation could worsen”.
“We don’t see any fundamental impact on oil markets yet, and it is still very much sentiment driven.”
“But I definitely suspect oil will move much higher, if it actually comes to war. US crude could easily surpass $110 and a $120 target is not out of the question,” said Le Brun.
US President Barack Obama and the leaders of Britain, Germany and Poland expressed “grave concern” on Sunday over Russia’s intrusion into Ukraine, which they called a breach of international law and a threat to international peace and security.
US Secretary of State John Kerry, who will visit Kiev on Tuesday, condemned Russia’s “19th century” behaviour and threatened visa bans, asset freezes and trade restrictions against Russia, following the seizure of the Ukrainian peninsula of Crimea.
The European Union, which depends on Russia for much of its natural gas and has close trade ties with its eastern neighbour, is unlikely to match the US in threatening sanctions against Russia when its foreign ministers meet to discuss Ukraine on Monday, instead pushing for mediation between Moscow and Kiev.
The tensions come at a nervous time for markets as activity in China’s factory sector slowed to an eight-month low in February, a government survey showed on Saturday, reinforcing signs of a modest slowdown in the world’s second largest economy as demand weakens.
The situation in Ukraine pressured Asian stocks on Monday, forcing anxious investors to cut their exposure to riskier assets in favour of traditional safe haven bets such as the Japanese yen and Swiss franc.
“There is nothing much you can do to calculate the risk premium in the current situation. We just have to wait and see how it develops,” said Le Brun.