Oil prices jump after escalation in Middle East crisis reignites global concern that supply of crude oil would be disrupted

Oil prices jumped after Iran attacked two US-Iraqi bases in its first response to the killing of a top general, sparking fears the deepening conflict will disrupt global crude supplies.

Futures in London briefly surged more than 5 per cent to almost US$72 a barrel as the Islamic Revolutionary Guard Corps claimed responsibility for the missile strikes, which the Pentagon said were launched from Iran. Prices later pared more than half that advance after Iran’s foreign minister said it had “concluded proportionate measures in self-defence” and US President Donald Trump tweeted that “all is well” following the attacks.

While flows from the Middle East continue to be unimpeded for now, the risk of disruption is spooking the oil market. Most crude exports from Saudi Arabia, Iran and Iraq, which collectively pumped more than 16 million barrels of oil a day in December, go through the Strait of Hormuz, a narrow waterway that Iran has repeatedly threatened to shut down if there’s a war.

The impact of the strike also spilled over into other assets, with gold surging to the highest to the highest level in six years, while US stock futures slumped along with Asian equities. Treasuries and the yen rose.

Oil’s had a dramatic start to the year triggered by the US air strike that killed General Qassem Soleimani last week. Iran said Tuesday it was assessing 13 possible ways to inflict a “historic nightmare” on America after the assassination of the powerful military commander near Baghdad’s international airport.

“It’s not going to be pretty today,” said Stephen Innes, Asia market strategist at AxiTrader. “The market is intensifying its responsiveness to supply risk as oil prices rocket higher with the risk premium predictably in short supply.”