Singapore — Crude oil futures were up by more than $1/b during mid-morning trade in Asia Wednesday, having given up some of its early gains, after Iran launched missiles striking two US military bases in Iraq, signalling a further escalation of geopolitical tensions.
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At 10:30 am Singapore time (0230 GMT), the front-month March ICE Brent crude futures moved $1.53/b (2.24%) from Tuesday's settle at $69.10/b, while the NYMEX February light sweet crude contract was $1.37/b (2.19%) higher at $64.07/b.
Iranian state TV said Tehran had started an attack on US facilities in Iraq in retaliation for last week's US drone strike in Baghdad that killed General Qassem Soleimani.
The US Department of Defense said Iran launched more than a dozen ballistic missiles at bases housing US troops.
"It is clear that these missiles were launched from Iran and targeted at least two Iraqi military bases hosting US military and coalition personnel at Al-Assad and Erbil," a Pentagon spokesman said. "We are working on initial battle damage assessments."
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Analysts see major risks to Iraq's crude supply if the conflict escalates.
Iraq pumped 4.68 million b/d in November -- close to 5% of global crude output, according to S&P Global Platts latest survey of OPEC production.
"Retaliatory action taken by Iran in the face of the on-going US-Iran tensions sets the market's risk aversion interest on fire. With expectations of further friction from here, investors appear to be pricing for an all-out war," IG's market strategist Pan Jingyi said.
"There is no denying the enormity of long-term geopolitical repercussions of the latest events as oil, bond, and gold defensive strategy flows are providing the lead-in for the local cash market opens," AxiTrader's chief Asia market strategist Stephen Innes said in a note on Wednesday.
US officials have also warned of potential Iranian attacks on Saudi oil facilities.
Saudi Arabia's critical Abqaiq crude processing facility had already been hit once, on September 14, an attack which Saudi authorities have blamed on Iran. The September 14 attack caused half of the kingdom's production capacity to go offline temporarily, though it quickly recovered.
"Higher oil prices pose significant economic risks to Asia, given its heavy reliance on that region for its oil imports. The oil importers with chronic trade deficits like India, Indonesia, the Philippines will be particularly vulnerable to oil price shocks," Innes said.
"With over 60% of outside crude oil and LNG imports coming from Middle East, particularly through the Strait of Hormuz, Asian countries watch nervously what is happening in the Gulf where Iran fired rockets and missiles at Iraqi bases housing the US troops in apparent retaliation against the killing of the influential Iranian general," Kang Wu, head of S&P Global Platts Asia Analytics, said.
"For now, Asian refiners have to deal with volatile and often spiking oil prices when sour crude-based crack margins are already in the negative territory," he added.
As of 0230 GMT, the US Dollar Index was down 0.065 at 96.60.
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