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January 6, 2020

Oil prices surge due to Iran, Iraq and US tensions

Oil prices have surged further due to tensions between the US, Iran and Iraq in the Middle East.

By Himaja Ganta

Oil prices have surged further due to tensions between the US, Iran and Iraq in the Middle East.

Brent crude futures raised $1.43 at $70.74 a barrel, while US West Texas Intermediate (WTI) crude was up $1.10 at $64.15 a barrel, according to a Reuters report.

US President Donald Trump threatened to impose sanctions on Iraq, which is one of the second largest producers among the Organization of the Petroleum Exporting Countries (OPEC), if it forces US troops to leave the country.

Last week, a US-drone attack killed top Iranian general Qasem Soleimani.

Trump added that the US will fight back against Iran if Tehran plans to strike back after the killing.

Reuters cited ING analysts as saying: “The big uncertainty now for markets is how Iran will respond to this attack.

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“While clearly, the latest developments put US assets in the region at risk, it also increases the risk of disruptions to oil supply in the Middle East, be it through the Iranians disrupting Strait of Hormuz oil flows, or through attacking energy infrastructure of US allies in the region.”

According to Goldman Sachs analysts, the current risk premium in Brent monthly price has already been raised. They also said that preventing supply interruption is now important to maintain current oil prices.

Referring to the attack on Saudi Arabia’s complex in September last year, the bank said: “The precedent set by the Abqaiq attack showed that the oil market has significant supply flexibility starting when Brent is at $70/bbl, even before shale production needs to ramp up, suggesting only moderate upside from here, should an attack on oil assets actually occur.”

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