Jan 3, 2020

Geopolitical risk storms back into oil markets

Illustration: Sarah Grillo/Axios

Iran's response to the U.S. killing of Qasem Soleimani, a top Iranian military official, could target oil infrastructure and transit in the Middle East, analysts say.

Driving the news: The airstrike in Iraq that killed Soleimani pushed prices sharply upward last night and into this morning.

  • And they would likely go much higher if the conflict escalates, especially if major energy facilities are hit in response, though, needless to say, we don't know the scope of Iran's next steps.

The big picture: "[T]he killing of Soleimani calls for a serious increase of the geopolitical risk premium," Olivier Jakob of the consultancy Petromatrix tells the FT.

Where it stands: Oil prices are up almost 4% in the wake of the U.S. strike. The global benchmark Brent crude is trading at $68.76 per barrel.

Threat level: A note from the Rapidan Energy Group games out Iran's options and concludes the most likely scenario is that Iran will "first look for ways to recoup leverage short of targeting U.S. military personnel."

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What they're saying: Jason Bordoff, head of a Columbia University energy think tank, predicted via Twitter that Iran's response will be "severe" and "deadly" and "certainly may include escalating attacks on energy infrastructure."

But, but, but: Eurasia Group analysts predicted in a note that while Iran will certainly respond, it's "unlikely to immediately attack Saudi or Emirati oil infrastructure or US bases in Saudi Arabia, the UAE, Bahrain, or Qatar."

  • Overall, they're hardly ruling out a major military conflict, but expect "moderate to low-level clashes to last for at least a month" that are likely confined to Iraq.
  • They also expect Iran to harass and even temporarily disrupt commercial shipping in the Gulf.
  • "Prices will likely hold around $70/barrel but could make a run at $80 if the conflict spreads to the oil fields of southern Iraq or if Iranian harassment of commercial shipping intensifies," they write.

Go deeper:

Go deeper

What Middle East crisis? Why oil prices aren't rising

Data: EIA; Chart: Axios Visuals

Despite rising unrest in the Middle East — including the death of an Iranian commander — America’s average gasoline prices have remained under $3 a gallon.

Why it matters: Practically speaking, it’s great for drivers’ pocketbooks — and President Trump’s re-election campaign. It also shows the remarkable cushion created by the United States' booming oil production, which has doubled over the last decade.

Go deeperArrowJan 8, 2020

U.S. kills top Iranian commander Qasem Soleimani

Soleimani (center). Photo: Press Office of Iranian Supreme Leader/Anadolu Agency/Getty Images

One of the Iranian regime's most powerful figures has been killed in a U.S. airstrike near Baghdad's international airport, the Pentagon has confirmed.

Why it matters: Qasem Soleimani, the leader of the elite Quds force of the Islamic Revolutionary Guard Corps (IRGC), was as revered by Iran's proxies and supporters across the region as he was reviled by Iran's foes, who considered him the mastermind of state-sponsored terrorism.

Go deeperArrowJan 3, 2020

World markets seek safety after a weekend of threats

Protesters have taken to the streets all over the world to object to U.S. actions, including this rally in front of the U.S. embassy in Manila. Photo: Ted Aljibe/AFP via Getty Images

The price of gold hit its highest in nearly seven years, oil hit a four-month peak and stocks were in the red across Asia and Europe, with Gulf stocks from Kuwait and Saudi Arabia down and S&P futures lower, as tensions between the U.S. and Iran ratcheted up over the weekend.

What happened: President Trump warned in a tweet that if Iran retaliated for the killing of General Qasem Soleimani last week it would face "very hard and very fast" attacks on 52 targets.

Go deeperArrowJan 6, 2020