December Brent crude futures spiked as high as $60.61 a barrel on Friday in morning trading before softening to around $59.80 later in the day after starting at about $59.40, according to ICE exchange data.
US stock index futures also began to climb on Friday morning, with Exxon Mobile and Chevron stocks gaining 1.1 percent and 0.6 percent, respectively as news of the oil tanker attack filtered through amid fears of possible supply disruptions and heightened regional geopolitical tensions.
Earlier Friday, trading on Asian markets saw Brent climbing by 2.3 percent to $60.46, with West Texas Intermediate jumping 2.1 percent to $54.69 before both eased back later in the day.
Oil Glut
Dr. Mamdouh G. Salameh, a leading London-based oil economist and visiting professor at the ESCP Europe Business School, suggested the long-term impact of Friday’s events on oil prices was difficult to predict, but said that “prices will hardly move upwards” unless the current tensions turn into an outright “shooting war between Iran and the United States.”
Dr. Salameh pointed out that even after over half of Saudi Arabia’s oil production was temporarily knocked out in last month’s drone attacks on Saudi Aramco facilities, oil prices didn’t see a significant rise.
“If the loss of 5.7 million barrels a day (mbd) of Saudi oil production hardly registered on the oil prices radar, I wouldn’t expect them to register now,” Salameh explained. “Therefore, the answer is simple. A glut estimated at 4.0-5.0 mbd was more or less able to offset a 5.7 mbd loss in Saudi oil production hence the reaction of the market and prices,” he added. The glut’s main cause remains the ongoing multitrillion dollar trade war between the US and China, the professor added.
The economist listed Saudi Arabia and the United States as the prime suspects for Friday’s attack, but noted that Riyadh probably doesn’t want to risk further damage to its oil facilities, including the massive Ras Tannura oil terminal, amid threats from Yemen’s Houthi militia. The US, on the other hand, “has an axe to grind against Iran,” according to Salameh, “having accused it of being behind the attacks on four tankers off Fujairah [in May], two tankers in the Gulf of Oman [in June] and the latest attacks on Saudi oil infrastructure. The United States may have felt it has lost face with Saudi Arabia and the world having threatened Iran with retaliation for the attacks on Saudi oil installations but failed to do so.”
Dr. Salameh warned that Iran would seek to “exact a price on the Americans” if it was proven that they were responsible, but noted that the US also isn’t interested in a shooting war with Tehran, given its ability to close the Strait of Hormuz chokepoint for oil, and thus pushing oil prices to skyrocket to $140 a barrel or more ahead of the 2020 election in the US.
For his part, Dr. Theodore Karasik, a senior advisor ad Gulf State Analytics, a Washington-based consultancy, warned against premature judgement on the possible attack, and who may be responsible, suggesting that Iran may be using this information “to affect the local environment as well as global markets as the oil vice is squeezed.”
James L. Williams, president of WTRG Economics, an Arkansas-based business management consultancy, said the long-term effect on oil will depend on Iran. "If they tie the attack to the Saudis then they will almost certainly retaliate, with each episode pushing prices higher. After the recent attack on the Saudi processing facility there is not as much spare production capacity and prices will be more sensitive to events like the Iranian tanker," he explained.
What Happened?
Twin blasts rocked the Iranian-owned Sabiti tanker on Friday morning as it sailed through the Red Sea, a key strategic waterway linking the Mediterranean Sea with the Indian Ocean.
Iranian officials suspect that the tanker was struck by two missiles, with the explosions said to have damaged two storerooms aboard the tanker and caused some of the estimated 1 million barrels of crude oil to leak into the sea. Tehran has yet to accuse any country or group for the suspected attack, with Foreign Ministry spokesman Abbas Mousavi later saying Iran was investigating this act of “dangerous adventurism.”
According to Mousavi, the missiles hit at an interval of less an hour, and did not occur simultaneously. The spokesman also revealed that Iran’s vessels have been repeatedly targeted as they move through the Red Sea in the past.
“In the past months, some other sabotage acts against Iranian tankers had been carried out in the Red Sea and investigations are underway into their perpetrators,” he said.
Iranian media later said that none of the tanker’s crew members were injured in the explosion, and that “the situation is under control.” Iran’s ISNA news agency reported the no country offered to assist the tanker after it was struck. According to Refinitiv shipping data, the tanker’s engine was still operational, and it has set a course for Larak, an Iranian island in the Persian Gulf.
Six countries border on the Red Sea, including Saudi Arabia and Yemen on its eastern shore, and Egypt, Sudan, Eritrea and Djibouti on its western shore. Israel also has access to the sea through the Gulf of Aqaba and the Strait of Tiran.
The region has faced piracy in recent years, with a US and NATO-led task force patrolling the region starting in the early 2000s due to Somali pirates, with Russia, India and other countries also occasionally deploying patrols in the region, although most of the attacks by pirates took place in the Arabian Sea, the Gulf of Aden and in the Indian Ocean, rather than the Red Sea.
