The oil market has been one of the most easily disrupted sectors when it comes to geopolitical moves.
As trade tensions between Washington and Beijing continue to grow, actual military tensions between regional rivals in the Persian Gulf alongside corporate adversaries in the Permian Basin are making a reappearance.
Saudi Arabia announced its oil tankers were attacked on Sunday near the Strait of Hormuz, a crucial avenue for crude oil transportation.
In response to the news, global oil prices have increased as geopolitical risks seem to be returning in force to the oil markets. Brent crude, the global oil benchmark, increased 2 percent while West Texas Intermediate, the standard for the U.S., increased by 1.5 percent.
The attack came days after the U.S. announced it would heighten its military presence in the Persian Gulf to counter what they call a growing threat from Iran, whom they accuse as being the most likely culprit behind the attack.
The anonymous U.S. official who led to the assessment refused to comment any further about what details led to them concluding Iran was behind the incident. The Wall Street Journal did report that the U.S. was sending an aircraft carrier and various other military assets into the region after further intelligence showed Iran posed a threat to soldiers in the area.
“If they do anything, they will suffer greatly. We’ll see what happens with Iran,” said President Trump while meeting Hungarian Prime Minister Viktor Orban on Monday in response to the incident.
Besides tankers from Saudi Arabia, ships from the United Arab Emirates as well as Norway came under attack, and none of those countries have accused Iran as masterminding the scheme. The incident has served to push oil prices higher as the market moved away from the Anadarko-Occidental merger, which was the last hot topic in the sector, and back to the issue of geopolitics.
One-third of the world’s liquefied natural gas alongside 20 percent of the world’s oil production flows through the Strait of Hormuz for export at one point or another.
Cutting off oil from this crucial access point would lead to global shortages as well as soaring oil prices. As such, investors, analysts, and governments pay close attention to developments in the region and potential moves on Iran’s part.
Previously, American and Saudi officials said that Washington didn’t know who was behind the attack and was skeptical about the possibility of Iranian involvement due to the risk of escalation.
Having sent out a military team to investigate, the U.S. official went on to say that it would be very clumsy from the Iranians if their fingerprints were on this incident. While Iran has threatened to close the Strait of Hormuz in response, they haven’t followed through with their threat.
With details surrounding the incident remaining scarce, it’s anyone’s guess as to what the reasoning was that changed their opinion that it was indeed the Iranians behind the incident.
As for the markets, oil investors can expect increased volatility over the week as U.S.-China trade talks combined with the possibility of renewed geopolitical tensions in the Persian Gulf impact oil prices.