Oil prices jumped following news that broke on Thursday night regarding a U.S.-Iran airstrike that killed a top Iranian general in the area. Tensions in Iran and the Middle East is a reoccurring theme for a while, but in 2019 has been an especially prevalent issue in regard to the global energy market.
Earlier last year, Iranian oil attacks send oil prices surging, and later on, an attack on Saudi-operated oil fields sent prices jumping again. Even though in this case, the situation has reversed with Iran on the receiving end of an attack, the markets prefer stability in general, hence why oil prices jumped.
An airstrike that has been confirmed to have been authorized by President Donald Trump ended up killing General Qassem Soleimani, head of Iran’s special forces as well as a top regional security advisor. The attack has killed five other people, including the deputy commander of Iranian-backed militias in Iraq as well as other personnel. According to an anonymous source and high-level security official that was present at the scene, the military personal had arrived at an airport and the attack occurred after Soleimani left his plane.
According to The Associated Press, the Pentagon has stated that General Soleimani was deliberately making plans to attack American diplomats as well as military forces in Iraq. The attack was also seen as a reprisal to an earlier attack led by Iranian-back militias against the U.S. Embassy in Baghdad. The embassy attack lasted two days and ended on Wednesday after Trump ordered an additional 750 U.S. soldiers to be deployed in the Middle East in light of this attack. Following this incident, the markets are justifiably worried about whether this will lead to further military escalation in the region. This would be terrible for global oil markets since the majority of the world’s oil supply passes through the Gulf of Hormuz, a narrow area that Iran can easily block.
“Equity futures are tanking, gold futures are surging — as the geopolitical risk Index rockets higher,” said Stephen Innes, chief Asia market strategist for AxiTrader in a note to clients regarding this incident. “This is more than just bloodying Iran’s nose. This is an aggressive show of force and an outright provocation that could trigger another Middle East war. Indeed we are waking up to a less safe world than it was only hours ago.”
In terms of the futures market, American standard West Texas Intermediate crude contracts for February delivery jumped by 2.8% in the past couple hours since the story broke (at the time of writing this article). Global standard Brent crude contracts also jumped by 2.9% as well. In terms of the major U.S. exchanges, the Dow Jones, the S&P, as well as the NASDAQ futures contracts all have fallen around 1% over the past couple hours as well. By the time Friday’s markets open up, expect prices for oil to continue to surge as traders react to the news, while equities markets will likely end the first week of 2020 on a low note.
