Oil prices surged in after-hours trading following an Iranian airstrike on Iraqi military sites used by US and coalition troops.
The price of oil surged in off-trading hours mid-week following an Iranian airstrike on Iraqi military sites used by US and coalition troops.
The Islamic Republic fired more than a dozen ballistic missiles at two Iraqi bases overnight in retaliation to a US drone attack in Baghdad, where top Iranian general Qasem Soleimani was killed.
There have been no reported casualties as a result of the late-night air assault.
News of the strike pushed markets into a frenzy and propelled the price of oil higher. West Texas Intermediate (WTI) and Brent crude climbed by a little more than 4 percent due to fears that a potential oil shortage may happen if tensions continue to mount.
WTI went from US$62.84 per barrel to US$65.48 and Brent crude moved from US$68.27 to US$71.17.
As reports of no casualties and little damage began to surface, prices began to fall back and were at US$62.01 for WTI and US$67.85 for Brent crude partway through Wednesday (January 8).
US President Donald Trump began a press conference that day by stating that Iran will never possess a nuclear weapon as long as he is president.
“For far too long, all the way back to 1979, in fact, nations have tolerated Iran’s destructive and destabilizing behavior in the Middle East and beyond. Those days are over. Iran has been the leading sponsor of terrorism, and their pursuit of nuclear weapons threatens the civilized world. We will never let that happen,” Trump said.
Iran’s supreme leader, Ayatollah Ali Khamenei, told a gathering that the Iraqi air base attacks were a “slap in the face” to America, and that US troops should leave the region.
A tweet from Iranian Foreign Minister Mohammad Javad Zarif on Monday (January 6) night implies this may be the only retaliatory measure from the Islamic Republic.
Iran took & concluded proportionate measures in self-defense under Article 51 of UN Charter targeting base from which cowardly armed attack against our citizens & senior officials were launched.
We do not seek escalation or war, but will defend ourselves against any aggression.
— Javad Zarif (@JZarif) January 8, 2020
Although WTI and Brent crude have slid back to their pre-attack prices, oil from the OPEC basket has steadily trended higher since the drone assault that killed the Iranian general, moving from US$67.15 last Thursday (January 2) to US$70.89 on Monday.
Actions in the Middle East tend to weigh heavily on OPEC producers. Last September, a drone attack on Saudi Arabia’s national oil producer, Saudi Aramco (TADAWUL:2222), reduced the country’s output by half and drove prices higher.
The airborne assault on the world’s second largest producer removed 5 percent of global supply from the market — 5.7 million barrels a day — and also impacted prices for both Brent crude and WTI due to concerns that an oil shortage would materialize.
Libya, another OPEC member, recently faced a similar, though less detrimental, attack on its oil sector. It didn’t move prices significantly, but did highlight the fragility of relations in the sector.
While Houthi rebels from Yemen claimed responsibility for the Saudi Arabia attack, international consensus points to Iran as being the actual perpetrator.
This point was made by Mercenary Geologist Mickey Fulp in a December interview.
“It’s Iran, that’s who it is. We all know who it is. We all know the reasons for it. Iran is a rogue country, both in the Middle East and worldwide, and they just so happen to be on the Strait of Hormuz.”
Fulp noted that while there are several oil bottlenecks in terms of shipping the energy fuel around the globe — the Red Sea, the Suez Canal and the Panama Canal — the Strait of Hormuz is the most prone to volatility, which then impacts the market.
Earlier this week, the UK announced plans to deploy two military vessels to escort ships with its flag through the area, and last year the strait was a major factor in the tensions between Iran and the UK after each country seized oil tankers belonging to the other.
The waterway will likely play an important role in the oil story in the weeks to come. However, now that the US is the world’s largest oil producer, WTI will probably be less affected by regional problems than the OPEC basket.
“We’ve got no interest in the Middle East anymore. I don’t know why our government continues to meddle in the affairs of these countries in the Middle East. We don’t need them anymore,” Fulp said.
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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.
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