Oil price spike linked to Iran threat
PROVIDENCE, R.I. — The global benchmark for crude oil rose above $70 a barrel on Monday for the first time in over three months, with jitters rising over the escalating military tensions between Iran and the United States.
The Brent contract for oil touched a high of $70.74 a barrel, the highest since mid-September, when it briefly spiked over an attack on Saudi crude processing facilities. Stock markets were down as well amid fears of how Iran would fulfill a vow of “harsh retaliation.”
“The market is concerned about the potential for retaliation, and specifically on energy and oil infrastructure in the region,” said Antoine Halff, a Columbia University researcher and former chief oil analyst for the International Energy Agency. “If Iran chose to incapacitate a major facility in the region, it has the technical capacity to do so.”
Still, many analysts say they see little cause for concern about damage to the U.S. economy resulting from the jump in oil prices. Some note that higher energy prices can actually benefit the overall economy because the U.S. is now a net exporter of petroleum products. And the Federal Reserve’s commitment to low interest rates means the Fed is unlikely to raise rates anytime soon to counter any inflationary effects from higher oil prices.
But economists caution that an escalation in the Trump administration’s confrontation with Iran could pose new risks in the long run.
The U.S. killed Iranian Gen. Qassem Soleimani in Iraq on Friday. Early Sunday, as Iran threatened to retaliate, President Donald Trump tweeted the U.S. was prepared to strike 52 sites in the Islamic Republic if any Americans are harmed.
Fears that Iran could strike back at oil and gas facilities important to the U.S. and its Persian Gulf allies stem from earlier attacks widely attributed to Iran.
The U.S. has blamed Iran for a wave of provocative attacks in the region, including the sabotage of oil tankers and an attack on Saudi Arabia’s oil infrastructure in September that temporarily halved its production. Iran has denied involvement in those attacks.
“Targeting oil infrastructure could raise prices and bring worldwide economic pain and put Iran on the front burner,” which might be exactly the kind of message its leaders are looking to send, said Jim Krane, an energy and geopolitics researcher at Rice University.
Analysts said American households devote a smaller proportion of spending to energy bills than in the past. That is in contrast to previous periods, when a surge in oil prices often preceded recessions.
The proportion of their spending that U.S. consumers devote to energy has fallen to a historic low of 2.5 percent, down from more than 6 percent in the early 1980s, economists at Credit Suisse noted in a research report.
