Oil prices rise, Dow crashes after U.S. airstrike kills Iranian military leader

<pre><pre>Oil prices rise, Dow crashes after U.S. airstrike kills Iranian military leader

The murder of Maj. Gen. Qasem Soleimani, the commander of the Iranian Quds Force, whose car was hit by a rocket from Baghdad airport early Friday, has been described by Iranian President Hassan Rouhani as a "cowardly and malicious act". "Iran will take revenge for this hideous crime," he said.

Iranian Defense Minister Amir Hatami said the "arrogant USA" strike will be answered with a "devastating" response. Secretary of State Mohammad Javad Zarif called the strike an "act of international terrorism" and said in a tweet that the United States "is responsible for all the consequences of its villainous adventure".

An obvious point of vulnerability is the narrow Strait of Hormuz, which is bordered by Iran's south coast. Approximately one-sixth of the world's oil supply flows through the waterway, which is 21 nautical miles wide at its narrowest point and has been classified by the US energy information agency as the "most important throttle point in the world". The amount of oil transported across the strait, much of which flows to China, India and Japan, is almost twice the total US oil production. Should the passage be closed by impending attacks, this could have devastating consequences for the global economy.

Other potential Iranian targets include oil fields and plants in Iraq or Saudi Arabia.

Two oil tankers in the Persian Gulf were paralyzed by attacks in June, and drone strikes on state-owned Saudi Aramco temporarily pulled 5.7 million barrels of crude oil, or 6 percent of global consumption, from daily traffic in September, causing the largest daily increase in production was restored within two weeks, and price increases after both incidents – up to 15 percent after the drone attack – abated quickly.

In a release released late Thursday, ClearView Energy Partners, a Washington-based research firm, said it was reasonable to expect reprisals against Iran “possibly in all three ways that Iran has taken in the recent past: (1) Alignment on regional shipping and energy production; (2) proxy (and principal) attacks on US assets and allies, including cyber attacks; and (3) further nuclear brinkmanship. "

Each of them would drive up oil prices. The note also argued that market prices continue to suggest inappropriate trust in "Iranian rationality and US reluctance."

Robert McNally, president of Rapidan Energy Group in Bethesda, wrote in an email: “Direct attacks on US personnel, diplomats or ships or a return to targeting [Persian] Golf oil infrastructure or tankers could easily add another $ 5 to $ 10 a barrel to the price. Should the conflict expand into a comprehensive conventional conflict, which also includes the US and Iranian armed forces in the Gulf, crude oil prices could rise into the three-digit range. "

In a paper published last summer to assess the impact of a conflict in the region, Rapidan argued that a disorder in the Strait of Hormuz could last "many weeks if not longer". It indicated that with a large US military operation, oil prices would drop, but peak, but then steadily rise again, as the expectation of a "quick and complete victory" would undoubtedly prove to be wrong. In such a case, it was also predicted that China would immediately start hoarding oil, which would quickly drive prices up even further.

However, the analysts agreed that only speculation is possible at this point.

"While there is no immediate direct impact on oil supplies from Iran or any other country, events like this have the effect of increasing the geopolitical risk premium on oil prices," said Pavel Molchanov, oil analyst at Raymond James. "We need to see how Iran responds and whether its response can actually lead to a supply disruption."

Molchanov pointed out that shutting down the Strait of Hormuz, although dramatic, would do serious damage to the Iranian economy, which is already suffering from the pressure of American sanctions. Since its inception in 2018, it has cost the nation $ 200 billion in revenue, increased inflation to around 40 percent, and led to food shortages.

McNally said there could be a good side. He believes that the Soleimani assassination will exacerbate the US-Iran confrontation, raising the possibility of a possible deal that could put pressure on oil prices downwards. But there could be some difficult moments before that happens.

On Friday morning, Brent Crude rose nearly 4 percent before rising about 3.5 percent during the day. West Texas Intermediate was just under 3 percent. The shares of the oil companies also rose

In Russia, the world's second largest oil producer after the United States, the stock index hit an all-time high in the news from Baghdad.

In New York, however, Wall Street's euphoric start to 2020 was sobering when the industrial average of Dow Jones dropped more than 340 points at the opening. The blue chip index ended some of these losses with a minus of 234 points or 0.8 percent and ended the day with 28,634 points. The Standard & Poor’s 500 index ended the day at 3,234 points, down 0.7 percent. The tech-heavy Nasdaq composite lost 71 points, 0.8 percent, and was 9,020. All three indices reached record levels on Thursday, the first trading day of the year.

Gold, a paradise for investors in turbulent times, rose 1.6 percent to $ 1,552 an ounce, a four-month high.

Oil prices have been dampened by an enormous global oil spill throughout 2019. This year, the United States also became the world leader in oil production, exporting crude oil for the first time in decades. Both of these developments could help mitigate the effects of a military escalation in the Middle East, analysts said, although Saudi and Russian decisions to cut production in December will support the price.

Kilduff also warned that the risks to oil production in the Middle East are real and are unlikely to be adequately reflected in the world's oil price.

Tensions between the U.S. and Iran have intensified since 2018, when Trump resigned from a 2015 nuclear deal and reintroduced sanctions.

Saudi Arabia, Iraq and Kuwait have grown in importance as US sanctions have helped push Iran and Venezuela – once important producers – out of the oil supply network. The Iranian oil minister has accused the United States of having imposed sanctions to gain market power as the United States is experiencing a slate boom. The Energy Information Administration predicts that average American production will reach 13.2 million barrels a day in 2020, an increase of 900,000 barrels a day from 2019.

The Strait of Hormuz is vital for major Asian economies like China, South Korea, Japan and Indonesia. Saudi Arabia, for example, is the largest supplier of crude oil to China and left Russia behind last year.

More than 70 percent of Saudi Arabia's crude oil production, about 5 million barrels a day, is destined for Asia. According to S & P Global Platts, large consumers such as Japan, India and South Korea have shifted to North American oil sources last year for fear of disruptions in the Middle East. These concerns were compounded by the attacks on oil tankers and the strikes on Saudi oil fields in 2019.