ASSESSMENTS

It Will Take More Than the Soleimani Crisis to Cause Lasting Oil Price Spikes

undefined and Director, Global Energy and Middle East
Greg Priddy
Director, Global Energy and Middle East, Stratfor

Jan 17, 2020 | 09:30 GMT

OPEC's logo is seen at the organization's headquarters on Sept. 26, 2019.

OPEC's logo is seen at the organization's headquarters on Sept. 26, 2019. The killing of Qassem Soleimani didn't especially hit oil prices, but unresolved U.S.-Iranian tensions could.

(OMAR MARQUES/SOPA Images/LightRocket via Getty Images)

Highlights

  • Crude oil is now trading below the price it held immediately before the Jan. 3 U.S. strike on Islamic Revolutionary Guard Corps Maj. Gen. Qassem Soleimani, highlighting a structural shift in how the oil market reacts to political risks.
  • Much of the rise in prices since early last month has stemmed from a U.S.-Chinese trade deal and the surprise announcement of OPEC+ production cuts, though OPEC+ will struggle to actually make these cuts happen.
  • Long-term U.S.-Iranian tensions, however, could result in uncontrolled escalation, which would cause a massive shift in prices in the event of a major, lasting disruption to oil production in the region.

The recent flare-up in the Middle East between the United States and Iran highlights a structural shift in how the oil market reacts to political risks. The market has shifted to a baseline with a modestly bearish outlook and a reluctance to price in risk in the manner it previously has. But even so, the potential exists for a massive price move in the less probable (but still very plausible) event of a major and lasting disruption....

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