Oil Surges as U.S. Airstrikes Kill Iranian Commander

Oil prices rose over $2 a barrel and gold and other safe-haven assets jumped on Friday, as the U.S. killing of a top Iranian commander in an airstrike in Iraq ratcheted up tensions between the two powers, Reuters writes.

Europe’s stock markets fell 0.5% in early trading as hopes for a lengthy New Year rally vanished. Safe havens gained, with Japan’s yen JPY= rising half a percent to the dollar to a two-month high and the Swiss franc hit its highest against the euro since September.

The Middle East-focused oil markets saw the most dramatic moves. Brent crude futures jumped nearly $3 to $69.16 a barrel — also the highest since September — before easing back to $68.42.

“We are only into the third day of the new year, and a big fat dollop of geopolitical uncertainty has landed on investors’ desks,” said Jeffrey Halley, senior market analyst for Asia Pacific at broker OANDA.

“I am struggling to see how an Iranian riposte will not occur,” he said. “Oil installations and tankers were my first thoughts.”

Soleimani’s Quds Force and its paramilitary proxies, ranging from Lebanon’s Hezbollah to the PMF in Iraq, have ample means to mount a multi-pronged response, Reuters added.

A few months ago, U.S. officials blamed Iran for a missile and drone attack on oil installations of Saudi Aramco, the Saudi state energy giant and world’s largest oil exporter. The Trump administration did not respond, beyond heated rhetoric and threats.

German Bunds and U.S. Treasuries – the world’s benchmark government bonds — caught a bid, too. Ten-year German yields, which move inversely to prices, fell further away from seven-month highs touched earlier in the week. U.S. 10-year yields fell 5 basis points to a three-week low.

The focus on geopolitics meant markets paid little attention to stronger-than-expected data from France, where inflation rose 1.6% year-on-year in December, beating analyst expectations for a 1.4% rise.

“Markets still remain quite thin after the holidays, but even in a regular session we would have seen a similar reaction,” said Christian Lenk, a rates strategist at DZ Bank in Frankfurt. “The repercussions from the airstrike are not clearly forecastable and tensions remain high in the region.”

The airstrikes in Iraq also killed top Iraqi militia commander Abu Mahdi al-Muhandis. They came after U.S. Defense Secretary Mark Esper said on Thursday there were indications Iran or forces it backed might be planning additional attacks after Iranian-backed demonstrators stormed the U.S. embassy in Baghdad.

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