09:31 GMT +312 December 2019
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    Supporters of Shi'ite cleric Moqtada al-Sadr protest against the execution of Shi'ite Muslim cleric Nimr al-Nimr in Saudi Arabia, during a demonstration in Baghdad January 4, 2016

    Oil Investors Should Look Ahead in Saudi-Iran Row, Expert Warns

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    Mass Execution in Saudi Arabia Whips Up Tensions (108)
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    Oil prices have been volatile since turmoil erupted over the weekend between Saudi Arabia and Iran. But investors should also consider the potential long-term impact to oil prices, according to one market expert.

    Saudi Arabia executed a prominent Iranian Shia cleric, Sheikh Nimr al-Nimr, on Saturday, drawing swift and sharp condemnation from Tehran, which warned that Riyadh would face "divine vengeance" for the killing.

    Iranian protesters also overran and set fire to the Saudi embassy in Tehran in retaliation. Shortly after that attack, Saudi Arabia cut all diplomatic ties with Iran.

    Since the chaos began, oil prices have spiked overnight, and then fell dramatically in early-morning trade in London on Monday before recovering again. West Texas Intermediate crude is up around 2.05% at $37.80, while Brent is up 2.90% at $38.36, Business Insider reported.

    But Vikas Dwivedi, a global oil and gas strategist at Macquarie Research, is considering potential long-term impact to oil prices.

    In a recent note to clients, Dwivedi said the Iran-Saudi disagreement could prove to be bullish for oil because of the "implications for longer-term strife and [the] possibility of war."

    "The escalation of Saudi/Iran or Sunni/Shia tensions continues to be underappreciated by oil investors," he said.

    "While supply growth continues to overwhelm demand in the near term, the vast majority of our 2016 supply growth comes from three countries, all located in the Middle East: Saudi Arabia, Iraq, and Iran. Any war between these nations, especially on Saudi or Iranian soil, represents significant upside to oil prices, even if production itself is not negatively impacted."

    It would take a major escalation for the conflict to evolve into an all-out war. But Dwivedi said wars have been started by "relatively small catalysts, which in hindsight, enabled broader, already prevalent antagonistic attitudes to boil over into major and often times violent events."

    "Where tensions already exist, innocuous events may cause seemingly outsized events," he writes.

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    Mass Execution in Saudi Arabia Whips Up Tensions (108)
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    execution, oil prices, Nimr al-Nimr, Iran, Saudi Arabia
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