Oil Spikes. The Geopolitical Risk Premium Is Back.

An oil pumpjack in California. (Mario Tama/Getty Images)

Oil prices hit their highest level in more than a month on Tuesday after President Donald Trump said he intends to place sanctions on buyers of Russian oil if Moscow doesn’t agree to a cease fire in Ukraine within 10 days.

Brent crude, the international benchmark, settled at $72.51 per barrel, rising 3.5% on the day and nearly 6% in the past two days. The Energy Select Sector SPDR exchange-traded fund, which holds major U.S. energy stocks, was up 1% on Tuesday.

Oil’s so-called geopolitical risk premium is back, reflecting the danger that international events could limit supplies, and it could stick around. Russia has shown few signs of backing off its war in Ukraine, and Trump’s threat of sanctions against buyers of its crude could result in a significant drop in the amount of oil available on the global market.

China and India are the largest buyers of Russian oil. If the U.S. imposes secondary sanctions or tariffs against them in connection with those purchases, it could have a major impact on the market. Very little Russian oil flows to most other countries because of sanctions imposed shortly after its 2022 invasion of Ukraine.

“While China has indicated it will not change its buying patterns, India has signaled compliance with European and US secondary sanctions, potentially putting up to 2.3 million barrels per day of Russian oil exports at risk,” wrote Natasha Kaneva, global head of commodities strategy at J.P. Morgan.

Russia accounts for about 35% of India’s crude imports, Kaneva says. She doesn’t think OPEC has enough spare capacity to fully replace Russian oil.

Russia could also retaliate by cutting off access to a major oil pipeline from Kazakhstan to a Black Sea port in Russia.

In a press briefing on Air Force One on Tuesday, Trump sounded unconcerned about the price impact of the sanctions. “I don’t worry about it. We have so much oil in our country. We’ll just step it up even further,” he said, adding that “oil is down pretty low right now.”

Write to Avi Salzman at avi.salzman@barrons.com