Escalation of tensions between Iran, Iraq and the United States in the wake of Thursday night’s airstrike at Baghdad’s international airport could have a dramatic impact on the oil market.
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On Friday, Brent crude, the international benchmark, was up nearly 3 percent to the $69 level. A similar move was seen in benchmark U.S. crude now trading around the $63 per barrel level. After the opening of U.S. stocks, oil came off those highs.
|USO||UNITED STATES OIL FUND L.P.||27.07||+0.85||+3.24%|
Gen. Qassim Soleimani, the head of Iran’s elite Quds Force and Abu Mahdi al-Muhandis, the deputy commander of the Iran-backed militias known as the Popular Mobilization Forces, were both killed in U.S. airstrikes overnight. The move comes amid the New Year’s Eve attack on the U.S. embassy in Baghdad which was followed by a run on the embassy.
Secretary of State Pompeo defended the attacks in a tweet:
"We will continue to hold the Islamic Republic of Iran accountable wherever we find their malign activity."
Ahead of the attacks, the U.S. sanctions on Iran’s oil industry and exports have significantly cut Iranian oil exports to the tune of some $200 billion according to Iranian President Hassan Rohani. “The market is concerned that ahead of the U.S. election, Iran may ramp up such proxy attacks on American interest in Iraq and other places in the Middle East, prompting Trump to engage an all-out war with Iran, reminding the days of Gulf War,” says markets analyst Asis Ghosh.
Edward Moya, an analyst at the brokerage OANDA, told Reuters via email, "The supply-side risks remain elevated in the Middle East and we could see tensions continue to elevate between the U.S. and Iran-backed militia in Iraq.''
The deaths of Soleimani and Abu Mahdi were first reported by Iraqi television and the attack was confirmed by the Department of Defense shortly after 9:30 pm ET on Thursday.
Earlier in the day the head of Iran’s Revolutionary Guards, Major General Hossein Salami, said at a conference in Iran that “we are not afraid of any war,” according to the Mehr News Agency, an Iranian news agency headquartered in Tehran and owned by the Islamic Ideology Dissemination Organization.
Salami denied that Iran was interfering in Iraq as President Trump has charged and chided the U.S. for warmongering. “They have besieged us with economic, industrial, and scientific sanctions to keep us dependent but our nation has resisted with divine guidance,” said Salami.
A few hours before the strike in Iraq, Defense Secretary Mark Esper told reporters that violent acts by Iran-backed Shiite militias in Iraq — including the rocket attack on Dec. 27 that killed one American — will be met with U.S. military force. “The game has changed,” said Esper.
The oil trade web site, oilprice.com said on Thursday that the sanctions against Iran “have driven away foreign investors and have contributed to a precipitous fall in the Iranian currency . . . and a major shrinking of the economy.”