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Oil prices rise following Iran missile strikes

Oil prices rose on Wed 8 January 2020 after Iran fired more than a dozen missiles at two airbases housing US and coalition troops at Irbil and Al Asad, west of Baghdad, Iraq. Casualties and the level of damage were unclear at the time of writing. The attacks came just hours after the burial of General Qasem Soleimani, who was killed on Friday 2 January after a US air strike on an airport in Baghdad. Brent crude futures hit the $70/b level in response to the attacks, their highest level since mid-September.

While analysts believe war is unlikely, it seems certain that investors will remain unsettled as the US/Iran conflict escalates.

Iran’s Foreign Minister is reported to have said the government had ‘concluded proportionate measures in self-defence’ to the US offensive on Friday, and that ‘we do not seek escalation or war but will defend ourselves against any aggression’.

Commenting on the news,
Colin Foreman, Deputy Editor at GlobalData, said: ‘Over the past five years, regional governments [in the Middle East] have been working hard to restructure and reform their economies so that they are less dependent on oil and gas and more attractive for private sector investment. Those efforts were expected to produce results in 2020, with the International Monetary Fund (IMF) predicting more rapid growth in key markets such as Saudi Arabia and the United Arab Emirates (UAE). Oil gross domestic product (GDP) may fare better. Rising tensions typically mean an increase in oil prices, which will benefit oil-exporting countries. The problem is the potential oil price windfall comes with other negative economic consequences.’

Mihir Kapadia, CEO of Sun Global Investments noted that not only had the price of WTI oil risen 1% to $ 63.22/b, gold and silver were also 1% higher while developed government bond  markets were higher. However, he also reported that: ‘Although these price surges are no reason to panic, the anticipation of a response from the US could hike prices further up as well heighten fears over supply.’

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