Stocks moved pre-market Friday on the news that the U.S. killed Iran's top general Qasem Soleimani in a drone strike in Baghdad. Mohamed El-Erian, chief economic advisor at Allianz, and Mike Santoli, CNBC's senior markets commentator, join "Squawk Box" to discuss the market impact. The U.S. killing of Iran’s most revered military leader could be more impactful for the oil market than other recent incidents that have just temporarily spiked crude prices.
Iranian Gen. Qasem Soleimani, who led the Iran Revolutionary Guard’s Quds Force and built Iran’s terror network across the Middle East, was killed by the U.S. in an airstrike at the Baghdad International Airport in Iraq.
Oil futures Friday afternoon were about 3% higher with West Texas Intermediate oil futures at about $63 per barrel, off its early high just above $64. International Brent crude futures were up 3.6% at about $68.67 per barrel. While oil backed off the day’s highs, oil analysts expect the price to remain volatile and slightly elevated with the potential to move much higher, if there are further actions.
“I think we’re in unchartered waters,” said Helima Croft, head of RBC global commodities strategy. “This is not a run-of-the-mill general being assassinated. This is where it becomes really challenging for the market. I don’t think this is a one off. You may have a reprisal. It may be quiet for a period, then there could be another incident.”
Analysts say Iran’s unpredictability and web of proxies, like Hezbollah, creates an unmeasurable risk factor for the price of oil that the market is not reflecting, and it makes for an even bigger wild card because Iran can operate through them like a rogue nation.
Iran’s supreme leader, Ayatollah Ali Khamenei, said Soleimani’s work will not end, and “severe revenge” awaits those who were responsible for his death. Analysts say Iran’s retaliation could be aimed at oil or military facilities, or even come as cyberattacks
“The Iranians can’t lose face over this. They have to do something,” said John Kilduff, partner at Again Capital. He expects the upper range for WTI crude to be $70 per barrel, and Brent to be $80 to $85 per barrel. “There’s still a big cushion and a ton of spare capacity in Saudi Arabia. We’re not in the dire tightly supplied market we were in a few years ago.”
Iran’s economy has been severely damaged by U.S. financial sanctions and an oil sales ban, and as pressures intensified, attacks blamed on Iran or its proxies have increased.
Tankers have been attacked in the Strait of Hormuz, but the most stunning and shocking incident was the attack on Abqaiq and Khurais in Saudi Arabia, in September that temporarily knocked out 5.7 million barrels a day of Saudi Aramco production.
It was the first major attack on Saudi Arabia’s oil facilities and a wake-up call on a potential vulnerability, but the kingdom was able to make up for the shortfall by using its own reserves as it repaired the facilities.The price of oil rose briefly after the Aramco attack but quickly backed down after the impact on world oil supply looked to be minor.
There was also a muted market reaction In May of last year, when four commercial ships anchored in the United Arab Emirates were hit by explosive charges causing large holes in their hulls, just above the waterline. Then a month later, two more oil tankers were attacked by what were widely believed to be limpet mines, explosives that are attached to the hull of a ship with a powerful magnet. Those attacks happened in the Gulf of Oman just outside of the Persian Gulf.
Iran never claimed responsibility for any of the attacks. The Islamic Republic is also believed to be responsible for several cyberattacks in Saudi Arabia including one targeting petrochemical plants in the kingdom in January 2017. Iran also targeted the U.S. banking industry in 2012.
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