US-Iran tensions stir the pot and see oil prices up by more than 4% today
I think the fact that oil prices have somehow managed to surpass the high seen after the Saudi attack back in September says a lot about how the market is positioned.
Price is now flirting with levels last seen back in late April as markets continue to focus on US-Iran tensions following the airstrike in Baghdad earlier today.
Despite the move higher today, the issue with a rise in prices due to tensions in the Middle East is that they tend to be unsustainable or that they do not last perpetually.
Eventually tensions defuse or die down and markets settle into a more calm mood and as such, any price spikes tend to be retraced and clawed back. Is this time different?
I would still argue for some retracement down the road but the fact that Iran may respond with retaliatory measures also increase chances of further escalation by the US.
This is what US senator, Lindsey Graham tweeted out overnight:
"This action by President Trump and our military was in direct response to Iranian aggression orchestrated by General Soleimani and his proxies. If Iran continues to attack America and our allies, they should pay the heaviest of prices, which includes the destruction of their oil refineries.
To the Iranian government: If you want to stay in the oil business leave America and our allies alone and stop being the largest state sponsor of terrorism in the world."
In that lieu, there is a threat that oil prices could still see a surge on further escalation in tensions - even more so in targeting Iranian oil refineries.
All that said, I wouldn't expect an all out war between the US and Iran to take place. This will be a battle more closely fought on many avenues - political, military, economic, civilian.
I reckon it will be one that will brew for a prolonged period so oil prices may retrace a little upon some dial down in immediate tensions but in the long-term, the war of attrition will be one to potentially give oil some tailwind every now and again this year.
