LONDON – Crude prices on Friday had the largest one-day spike since a September attack on the world's largest oil processing facility in Saudi Arabia after the U.S. killed Iran's top general in a drone strike.
If sustained, the rise in oil prices could push the cost of gasoline, heating fuel and electricity higher, potentially dragging on the global economy at a time when it is already slowing.
The international benchmark for crude oil at one point jumped almost 4% per barrel in London. U.S. crude prices increased about the same.
The timing of escalating tensions in the Middle East could be economically troublesome worldwide, and particularly for the U.S. and China, which are expected to sign off on a “Phase 1” trade deal within weeks. The agreement could energize the industrial sectors of both economies. The industrial sector accounts for the largest share of energy consumption, meaning that any sustained increase in prices could dampen the economic effect of a deal.
Another sector that consumes vast amounts of energy, the airline industry, was hit immediately Friday, with shares of Lufthansa in Germany, and also Air France, falling between 7% and 8%. American Airlines slid 4%.
Most international affairs experts anticipate Iranian retaliation after Gen. Qassem Soleimani, head of Iran’s elite Quds Force, was killed early Friday in an air attack at the Baghdad international airport.
Iran could retaliate with cyber attacks or, as it did last week, target U.S. installations in the Middle East. Angered by deadly airstrikes targeting an Iran-backed militia, dozens of Iraqi Shiite militiamen and their supporters broke into the U.S. Embassy compound in Baghdad last week in one of the worst attacks on the embassy in recent memory.
But on the southern border of Iran lies the Strait of Hormuz, the world's most important oil chokepoint, according to the U.S. Energy Information Administration. About 20% of crude traded worldwide must pass through this shipping lane, which is only 3 kilometers (2 miles) wide. Tankers have come under attack this year in the strait and Iran maintains a heavy presence.