The price of oil surged on concerns that Iran might respond to the killing of its top general by the United States by disrupting global supplies of energy from the Mideast. If sustained, the rise in oil prices could lead to more expensive car fuel, heating and electricity bills, stifling the global economy at a time when it is already slowing.
News that Gen. Qassem Soleimani, head of Iran’s elite Quds Force, was killed in an air attack at the Baghdad international airport prompted expectations of Iranian retaliation. During past flare-ups in relations with the U.S., Iran threatened the supply of oil that travels from the Persian Gulf to the rest of the world. About 20% of crude traded worldwide goes through the Strait of Hormuz, where the shipping lane is only 3 kilometers (2 miles) wide and tankers have come under attack this year. The international benchmark for crude oil jumped 3.7%, or $2.45, to $68.70 a barrel in London trading. The U.S. contract was up 3.6%, or $2.18, to $63.36.
About 80% of the crude oil that travels through the Strait of Hormuz goes to countries in Asia, including China, Japan, India and South Korea. But the rise in the global price of oil will likely have a wider effect, particularly in oil-importing countries with big manufacturing sectors like Germany. Its stock market fared worst on Friday, falling 1.3%. Because the prices of fuels like gasoline generally reflect moves in the market for crude, that could mean higher costs for drivers and airlines, for example. Airline shares were down sharply across the world on January 3, Friday.
In the U.S., crude oil accounts for just over 50% of the price of gasoline, according to the U.S. Energy Information Administration. In the longer term, the rise in crude oil prices could be limited by the fact that the energy market is flush with oil while demand has softened as major economies have slowed. Crude-producing countries — particularly the Unites States — have been pumping oil at a high rate.
Gold jumps to near 7-year high
Gold surged close to a seven-year peak, as investors flocked to the safe-haven metal on escalating US-Iran tensions, while palladium surpassed the level of $2,000 to hit a record high. Spot gold rose 1.7% to stand at $1,577.98 per ounce. Earlier in the session, it had rallied as much as 1.8% to touch $1,579.72, its highest since April 10, 2013. US gold futures gained 1.8% to $1,580.30.