Oil yesterday jumped close to US$70 per barrel after an airstrike ordered by US President Donald Trump killed a top Iranian general in Iraq.
In a turbulent start to the Asian day marked by unusually heavy trading, futures in London and New York surged by more than 4 percent to levels not seen since the attacks on Saudi Arabia’s infrastructure in September last year.
The strike near Baghdad International Airport killed Qassem Soleimani, the Iranian general who led the Iranian Revolutionary Guard Corps’ Quds Force, the US Department of Defense said in a statement.
While no oil installations or production were affected, the killing of one of Iran’s most powerful generals is a provocation that ratchets up tension between Washington and Tehran, heightening fears of an armed confrontation that could pull in other countries.
As focus shifts to how Iran will react, Iranian Supreme Leader Ayatollah Ali Khamenei vowed in a statement that “severe retaliation” awaits the killers of Soleimani.
“This is more than just bloodying Iran’s nose,” AxiTrader Ltd chief market strategist Stephen Innes said in a note. “This is an aggressive show of force and an outright provocation that could trigger another Middle East war.”
Crude prices had pared back some of their immediate gains by midday in Singapore, but remained at the highest levels since September.
London’s Brent crude for March settlement was up US$2.12, or 3.2 percent, at US$68.37 per barrel on the ICE Futures Europe exchange at 1:25pm in Singapore. It earlier jumped as much as 4.4 percent to US$69.16 per barrel.
In New York, West Texas Intermediate for delivery next month was 3.1 percent higher at US$63.07 per barrel. The contract earlier advanced as much as 4.4 percent to US$63.84, exceeding September’s levels to the highest since May last year.
Total aggregate volume for Brent and West Texas Intermediate was about 20 times the 30-day average.
Tensions have been building between Washington and Tehran after an Iran-backed Iraqi militia stormed the US embassy in Baghdad earlier this week to protest other US airstrikes.
Saudi Arabia’s energy facilities, as well as foreign tankers in and around the Persian Gulf, have been the target of several attacks over the past year — a region that includes OPEC’s five biggest producers.
The US and Iran are already facing off over Trump’s crippling economic campaign against Tehran and suspected Iranian reprisals.
US Secretary of Defense Mark Esper on Thursday said that the US was ready to deploy more force in Iraq after the attack on its embassy.
While details remained unclear, a person familiar with the developments said that an Iraqi militia leader, Abu Mahdi al-Muhandis, was also killed in the latest strike.
The airstrike escalated an already tense three-way situation between the US and major oil producers Iran and Iraq. The two Middle Eastern countries combined pumped more than 6.7 million barrels of oil per day last month, data compiled by Bloomberg showed, more than one-fifth of OPEC output.
Energy exports from both countries also rely on the Strait of Hormuz, the narrow and crucial oil and natural gas shipping choke point that is always in focus when Middle East tensions flair, particularly with Iran.
“I expect tensions in the region to now intensify,” said Howie Lee (李華豪), a Singapore-based economist at Oversea-Chinese Banking Corp (華僑銀行). “Going into an election year in the US, the maximum pressure campaign by President Trump on Iran may intensify further.”
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