Investor sentiment turned negative Friday following the Pentagon’s confirmation that a United States airstrike inside Iraq had killed top Iranian general Qassem Soleimani, an escalation of tensions between the two countries. The benchmark Dow Jones Industrial Average plunged more than 300 points when markets opened Friday. In the overnight and early morning hours, futures for oil prices had risen as broader market indices fell.
“The oil market reaction was swift and quick as prices rose about 4 percent,” said Andrew Lipow, president of Lipow Oil Associates. This had ripple effects on other industries, particularly airline stocks, which are especially sensitive to energy volatility.
Lipow said American drivers shouldn’t expect a spike in prices at the pump — at least, not yet. Gasoline and diesel futures were up about six cents a gallon, he said. By comparison, the September attack believed to be conducted by Iran-backed forces on a key oil production facility in Saudi Arabia, which led to a short-term supply disruption, caused gas and diesel futures to rise around 20 cents a gallon.
F. Gregory Gause III, professor and head of the international affairs department at Texas A&M University, pointed out that the September impact on prices was relatively short-lived, as investor fear faded and Saudi Arabian authorities pushed to repair the damage and restart production within weeks. “The Iranian attack on Saudi oil facilities in September had only a temporary impact on oil markets,” he said.
The sharp drop in U.S. equities at opening had moderated somewhat by mid-morning; a sign, economists suggested, that cooler heads ultimately would prevail.
“I suspect that the market is relying on the fact that this is likely to be worked out, will likely be settled in a diplomatic fashion. We don’t see this escalating into an all-out military action,” said Peter Cardillo, chief market economist at Spartan Capital Securities.
“Yes, a harsh war of words will likely take place before diplomacy is used — that’ll keep the markets nervous and volatile but I don’t think this is going to reverse the bullish sentiment that the market has been in,” he said.
“We’ve seen time and time again that Trump will attack someone and then send out a tweet to de-escalate. Trump is very good at playing the game. He will send a very strong signal, then try to appease you,” said Zhiwei Ren, managing director and portfolio manager at Penn Mutual Asset Management.
“I see this as a knee-jerk market reaction to startling news,” Gause said. “There will be an Iranian reaction, but it could be weeks away.”
That said, many analysts and economists aren’t counting out Tehran — or its proxies — just yet.