Oil surges past $70 as US-Iran tensions rise

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Brent crude surged 5 per cent to more than $70 a barrel on Thursday, as traders reacted to US President Donald Trump’s escalating threats against Iran.

Any attack could interrupt oil flows from Iran and potentially the broader Gulf region, which is vital for global crude supplies.

The global oil benchmark has climbed around 9 per cent this week, touching a five-month high of $71.89 a barrel on Thursday, as the US president has used increasingly hostile language against the Iranian government following its brutal crackdown on protesters.

The USS Abraham Lincoln arrived in Middle Eastern waters earlier this week as part of what Trump called a “beautiful armada” targeting Iran. Although it is unclear how Trump intends to use this force, he said in a social media post on Wednesday that the ships would use “speed and violence, if necessary”.

“There’s growing anxiety in oil markets that there could be an acute event and, even if there isn’t, having this US military presence in the Middle East creates a lingering impression,” said Edward Bell, head of research at Dubai-based bank Emirates NBD.

Should the US take direct action, traders will keep a keen eye on whether global oil supplies are directly affected. “Geopolitics burns hot but briefly in oil markets. Unless cargo is affected the price impact will fade rapidly,” Bell added.

The shortlived Iran-Israel conflict last year — as well as US air strikes on Iran — drew a relatively muted response from markets as traders bet on an eventual de-escalation of hostilities amid expectations of a growing global glut of crude.

But fears the US will repeat its Venezuela playbook and seize Iranian tankers, coupled with recent supply disruptions in Kazakhstan, have dented confidence that the world will be awash with oil.

“This time the rally has really materialised. If the US warships suddenly turn back around we might only see a drop of $2-3 a barrel in response,” said Ole Hansen, head of commodity strategy at Saxo Bank.

“Just a month ago, we were bracing for prices to drop because of the overhang of supply. Instead of sub-$60 we’re now looking at over $70 a barrel.”

The sharp sell-off of the US dollar is also bolstering oil prices. A falling dollar makes buying oil cheaper for investors holding foreign currencies.