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U.S. Airstrike That Killed Iranian General Sent Shock Waves Through Financial Markets

Jan 3, 2020
Originally published on January 3, 2020 7:31 pm
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The U.S. airstrike that killed a top Iranian general also rattled financial markets. Oil prices jumped, and stock markets fell after last night's attack. But the moves were modest considering how the strike abruptly escalated tensions across the Middle East. Some analysts say that points to a new resilience in the U.S. economy. Others say the market is simply underestimating the dangers ahead. NPR's Scott Horsley reports.

SCOTT HORSLEY, BYLINE: When airstrikes on a giant Saudi facility knocked out half the kingdom's oil production back in September, the price of oil surged more than 14%. Today's increase was considerably smaller. Traders, reacting to the death of Iranian Quds Force leader Qassem Soleimani, pushed the price up less than 4%. That's partly because Soleimani's death caused no actual disruption to oil supplies, at least not yet. Energy analyst John Kilduff says it also suggests Americans feel increasingly insulated from potential oil shocks in the Middle East.

JOHN KILDUFF: It's a new era. The surge in production by the United States has really created almost a firewall against these geopolitical risks that used to really haunt the oil market and consumers at the gasoline pump, for that matter.

HORSLEY: Back in 1990, when Iraq invaded Kuwait, oil prices shot up nearly 60%. And the price jumped more than 200% during the Arab oil embargo of the early 1970s. Today, Kilduff says the global oil market is much more resilient.

KILDUFF: Right now, there's a significant cushion of spare capacity in Saudi Arabia, for starters. Other countries, too, could put more oil on the market really within a moment's notice if there was any kind of a supply disruption.

HORSLEY: But other observers say that's no reason to be complacent about the escalating tensions between the U.S. and Iran. Yes, Saudi Arabia quickly repaired its oil facility after the September drone strike. But Meghan O'Sullivan, who directs the Geopolitics of Energy Project at Harvard, says that's no guarantee the next attack won't be worse.

MEGHAN O'SULLIVAN: Markets should be seriously concerned about what might happen in the coming days, and consumers could well see a significant increase in the price of oil.

HORSLEY: O'Sullivan, who served in the George W. Bush White House, says Iran is likely to retaliate for Soleimani's death by targeting oil installations, perhaps in the belief that's less likely to trigger a U.S. reaction.

O'SULLIVAN: The Iranians, my guess is, they will estimate that they can ramp up attacks on oil infrastructure, and this will not necessarily bring about another counterattack by the US. They just need to stay away from actually killing more Americans.

HORSLEY: Since the drone strike in September, Saudis and others have taken steps to safeguard their oil facilities. But energy expert Amy Myers Jaffe with the Council on Foreign Relations says Iran still has a lot of potential targets it could go after.

AMY MYERS JAFFE: There is no question that everyone across the Middle East has taken steps to harden their facilities. But there's a lot of danger all across the Middle East.

HORSLEY: When the U.S. was a major oil importer, rising prices were a drag on the domestic economy. But nowadays, the picture is more mixed. Kilduff says higher prices would be welcomed by struggling U.S. oil producers, even if they aren't rushing to drill additional wells.

KILDUFF: It will allow them to live on to see another day.

HORSLEY: The rising tension in the Middle East comes at a sensitive time for the U.S., just as it seemed the Trump administration was about to resolve some of its ongoing trade battle with China. Now, the fight with Iran adds a new note of uncertainty for businesspeople and investors. For the moment, though, the market is taking that in stride. The Dow Jones Industrial Average and the S&P 500 fell today by less than 1%.

Scott Horsley, NPR News, Washington. Transcript provided by NPR, Copyright NPR.