Oil prices jump to $70 a barrel after US airstrike

Oil prices jumped close to $70 a barrel after a US airstrike ordered by US president Donald Trump killed a top Iranian general in Iraq, intensifying fears of conflict in the world's most important oil-producing region.

In a turbulent start to the typically sedate Asian trading day, futures in London and New York surged by more than 4 per cent to levels not seen since the attacks on Saudi Arabia’s infrastructure in September that knocked out about 5 per cent of global oil supply.

The strike killed Qassem Soleimani, the Iranian general who led the Revolutionary Guards' Quds force, according to a statement from the Defence Department.

While no oil installations or production were impacted, the killing of one of Iran’s most powerful generals is a provocation that risks escalating a growing conflict between Washington and the Islamic Republic and destabilising the Middle East more broadly.

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The attack occurred near Baghdad international airport and also killed an Iraqi militia leader, according to a person familiar with the matter.

“This is more than just bloodying Iran’s nose,” Stephen Innes, chief market strategist at AxiTrader said in a note. “This is an aggressive show of force and an outright provocation that could trigger another Middle East war.”

Highest levels

Crude prices had pared back some of their immediate gains by midday in Singapore but remained at the highest levels since September. London’s Brent crude for March settlement was up $1.95, or 2.9 per cent, at $68.20 a barrel on the ICE Futures Europe exchange. It earlier jumped as much as 4.4 per cent to $69.16 a barrel.

In New York, West Texas Intermediate for February delivery was 2.7 per cent higher at $62.83 a barrel. The contract earlier advanced as much as 4.4 per cent to $63.84, exceeding September’s levels and the most since May.

Tensions have been building between Washington and Tehran after an Iran-backed Iraqi militia stormed the American embassy in Baghdad to protest deadly US airstrikes earlier this week.

Saudi Arabia’s energy facilities as well as foreign tankers in and around the Persian Gulf have been the target of several attacks over the past year – a region that includes Opec’s five biggest producers.

Iranian reprisals

The US and Iran are already facing off over Trump’s crippling economic campaign against Tehran and suspected Iranian reprisals.

US defence secretary Mark Esper said on Thursday that America was ready to deploy more force in Iraq after the attack on its embassy.

The strike escalates an already tense three-way situation between the US and major oil producers Iran and Iraq.

The two Middle East countries combined pumped more than 6.7 million barrels a day of oil last month, according to data compiled by Bloomberg, more than one-fifth of Opec output.

Energy exports from both countries also rely on the Strait of Hormuz, the narrow and crucial oil and natural gas shipping choke-point that’s always in focus when Middle East tensions flair, particularly with Iran.

“I expect tensions in the region to now intensify,” said Howie Lee, a Singapore-based economist at Oversea-Chinese Banking Corp.

“Going into an election year in the US, the maximum pressure campaign by president Trump on Iran may intensify further.” – Bloomberg