CNBC - January 2, 2020

Oil prices surged 4% on Friday following confirmation by the Pentagon that Iran’s top commander was killed in a U.S. airstrike in Baghdad, raising concerns of a bigger conflict between the two countries that could disrupt energy production in the region.

The U.S. military took the “decisive defensive action to protect U.S. personnel abroad by killing Qasem Soleimani,” a statement by the U.S. Department of Defense said Thursday night. It was a directive from the U.S. president, the DOD said.

International benchmark Brent crude gained $1.88, or 2.8%, after earlier trading as high as $69.50. U.S. West Texas Intermediate gained $1.45, or 2.4%, to trade at $62.63 per barrel. Earlier in the session WTI reached $64.09, its highest level since April.

The attack will likely “provoke significant retaliation” from Iran as well as Iranian-backed militia in Iraq, said Matthew Bey senior global analyst at Stratfor.

Iran is likely to return to backing attacks on oil infrastructure in the Persian Gulf and the rest of the Middle East, Bey told CNBC. Tehran could also consider attacks on Saudi Arabia’s oil infrastructure if tensions escalate, and it would have both the “capability” and “willingness” to attack major choke points that would “take months to rebuild” in Saudi Arabia, he said.

Soleimani, who led a special forces unit of Iran’s elite Revolutionary Guards, was killed, along with Abu Mahdi al-Muhandis, the deputy commander of Iran-backed militias known as the Popular Mobilization Forces, Iraqi television and officials initially reported. He is a key figure in Iranian politics and has been blamed by the U.S. for this week’s attack of the U.S. embassy in Baghdad.

“It’s been a knee jerk reaction because everybody is asking the question how is Iran going to retaliate, and I think that’s why you’ve seen prices jump 3, 4%,” Energy Aspects’ Amrita Sen said Friday on CNBC’s “Worldwide Exchange.” “The real risk is how does Iran retaliate. We’ve seen what it can do in Saudi Arabia, does it do similar stuff again, is there another attack on Saudi facilities.” ...
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