The US assassination of one of Iran’s most powerful generals has the oil industry bracing for something it has long feared and anticipated – direct military confrontation between the two adversaries.
In the hours after President Donald Trump ordered the killing at Baghdad airport of Qassem Soleimani, who led Iran’s Quds force, crude oil surged, American workers began to withdraw from Iraqi fields and traders scrambled to position themselves for even higher prices.
Iraq is the second-largest producer in the Organisation of Petroleum Exporting Countries, pumping 4.65 million barrels a day last month.
It’s immediate neighbours in the region – Saudi Arabia, Kuwait and Iran – together produce about 15 million barrels a day. Most of their exports leave the Persian Gulf through the Strait of Hormuz, a narrow waterway that Iran has repeatedly threatened to shut down if there’s a war.
“We should all be bracing for a ferocious response,” said Helima Croft, chief commodities strategist at RBC Capital Markets.
The stage is set for a retaliatory spiral that could keep markets on edge well into 2020.”
Rising tensions between the Iran and the US have already caused unprecedented disruptions to oil markets, but so far, they’ve been short-lived. Last year, Washington blamed Teheran for sabotage attacks on supertankers and a missile and drone attack on Saudi Arabia’s Abqaiq crude-processing plant in September – the largest single supply halt in the industry’s history.
An escalation into direct fighting between US and Iranian forces in the world’s most important oil-producing region would have longer lasting consequences for the global economy.
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