Almost as soon as the reports hit the news on Thursday, confirming the American airstrike that resulted in the death of Qassem Soleimani, Iranian commander in Baghdad, the financial markets shifted. Oil prices took a jump, the indices for stocks plummeted, and the stocks of weapons manufacturer soared.
With the recent airstrike, considerable tension was added to an already delicate situation and region. There is also the additional concern that any possible escalation could play into disruptions of the oil supply, which is feared to cause high prices.
These same higher prices could lead to consumers paying the price when they go to fill up their tanks. Before eventually calming down somewhat, the price of crude oil jumped approximately 4% from the previous price of $61 a barrel, stabilizing at almost $64 a barrel.
There is no denying that the continued deterioration of the United States' relationship with Iran will drastically affect both the consumers and the U.S. economy. However, there are current factors that should help keep prices stabilized for consumers at the pump. It really depends on how Iran chooses to react, or even retaliate, that will set the end tone.
Head of petroleum analysis at GasBuddy, Patrick Dehaan, stated: “The sky is the limit based on their potential reaction.”
The ING Group stated Friday that it would take quite a bit to scare the current oil market, because of the comfort of the supply. Even if the situation were to escalate, the capacity currently held by Saudi Arabia would aid in keeping the prices at the pump well under control.
Even if Iran were to make so bold of a move as to block the Strait of Hormuz, it is assumed that the country’s newest pipeline would allow shipments of oil through the Red Sea, thusly controlling any potential for severe effects.
Currently, 20% of global consumption comes from exports of oil that utilize the Strait of Hormuz. If Iran were to follow through on their threats and manage to block the Strait, the results could see prices shooting up to $150 per barrel.
It is also worth noting that the reason that the current gas prices are somewhat shielded is that this is an election year. Why you may ask, does that play a factor? With it being an election year is that Trump may see his way more clearly to opening up the U.S. Strategic Petroleum Reserves should there be a drastic need for him to do so.
Do you think that the price of oil is headed for an upswing due to recent events?