Oil jumps $3 after US air strike in Baghdad

Concerns grow over escalation of regional tensions after air raid

Reuters January 03, 2020
All oilfields across the country were operating normally and production and exports were not affected, Iraq's Oil Ministry said in a statement. PHOTO: REUTERS

LONDON: Oil prices jumped more than $3 on Friday after a US air strike in Baghdad ordered by President Donald Trump killed the head of Iran's elite Quds Force, sparking concerns for an escalation of regional tensions and disruption to crude supplies.

Brent crude rose as high as $69.50 a barrel, its highest since mid-September when Saudi oil facilities were attacked, and was up 4.2% or $2.83 a barrel at $69.08 by 1058 GMT.

West Texas Intermediate (WTI) crude was up $2.53 or 4.1% at $63.71 a barrel, having earlier spiked to $64.09 a barrel, its highest since April 2019.

An air strike at the Baghdad Airport early on Friday killed Major General Qassem Soleimani, the architect of Iran's spreading military influence in the Middle East and a hero among many Iranians.

Iran's Supreme Leader Ayatollah Ali Khamenei said harsh revenge awaited the "criminals" who killed Soleimani.

"We expect moderate to low-level clashes to last for at least a month and likely be confined to Iraq," Eurasia's Iran analyst Henry Rome said. "Iran will also likely resume harassment of commercial shipping in the Gulf, and may launch military exercises to temporarily disrupt shipping," he said.

The US embassy in Baghdad on Friday urged all citizens to depart Iraq immediately due to heightened tensions. Dozens of US citizens working for foreign oil companies in the Iraqi oil city of Basra were preparing to leave the country on Friday, company sources told Reuters.

All oilfields across the country were operating normally and production and exports were not affected, Iraq's Oil Ministry said in a statement. It said no other nationalities were departing.

"With further escalation remaining a distinct possibility, we could see markets retain at least some risk premium," JBC Energy, an oil and gas research firm, said in a note.

Soleimani's Quds Force and its paramilitary proxies in Iraq, Lebanon and Yemen have ample means to mount a multi-pronged response.

In September, US officials blamed Iran for a missile and drone attack on oil installations of Saudi Aramco, the Saudi state energy giant and world's largest oil exporter.

The Trump administration did not respond beyond heated rhetoric and threats.

Meanwhile, Russia has halted oil supplies to refineries in Belarus amid a contract dispute that is also threatening large Russian oil deliveries to Western Europe crossing the country.

Two trading sources told Reuters Russian oil transit to Europe via Belarus was so far continuing uninterrupted.

Oil prices were also lifted by China's central bank saying on Wednesday it was cutting the amount of cash that banks must hold in reserve, releasing around 800 billion yuan ($115 billion) in funds to shore up the slowing economy.


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