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 to a peak of $69.50 a barrel, its highest since mid-September when Saudi oil facilities were attacked, and was up 3.7 per cent or $2.43 a barrel by 1445 GMT at $68.68.

West Texas Intermediate (WTI) crude was up $2.17 or 3.5pc at $63.35 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 and Shias in the region.

Cailin Birch, global economist at The Economist Intelligence Unit, said the market feared a “broader conflict”.

Markets fear broader conflict in the Middle East, says expert

“The importance stems less from the potential loss of Iranian oil supplies... and more from the risk that this could spark a broader conflict that draws in Iraq, Saudi Arabia and others,” she said.

“There is also a significant risk that Iran could launch a targeted attack on US ships in the region, which could disrupt seaborne crude oil flows and cause prices to rise further.”

Prices saw record gains in September after the attacks on two Saudi Arabian facilities. The US blamed Iran for the attacks, but the charge was denied by Tehran.

“The market remembers very well the unexpected drone attack on Saudi Aramco last autumn and is afraid that something similar can have a massive impact on oil market supply and prices for an extensive period of time,” noted Saltvedt.

Birch, however, talked down the prospect of a full-blown war and described Friday’s price gains as “fairly muted” so far.

“We do not expect to see a one-day price spike, in percentage terms, as large as the 10pc jump seen in September 2019 when Saudi oil infrastructure was attacked.

“While this strike is the most significant escalation of US-Iran tensions that we’ve seen yet, we still do not expect the US and Iran to enter into a full-fledged war that would impact oil production and disrupt regional supply chains.”

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 said.

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.

Published in Dawn, January 4th, 2020