Oil price keeps rising as industry eyes Iran-US conflict

FILE - In this file photo dated 1990, Aramco refinery at Ras Tannura, Saudi Arabia. The price of oil surged Friday Jan. 3, 2020, as global investors were gripped with uncertainty over the potential repercussions and any retaliation, after the United States killed Iran's top general Qassem Soleimani.(AP Photo/FILE)




Still, many analysts say they see little cause for concern about damage to the U.S. economy resulting from the jump in oil prices. Some note that higher energy prices can actually benefit the overall economy because the United States is now a net exporter of petroleum products. And the Federal Reserve's commitment to low interest rates means the Fed is unlikely to raise rates anytime soon to counter any inflationary effects from higher oil prices.

But economists caution that an escalation in the Trump administration's confrontation with Iran could pose new risks to the economy in the long run.

The U.S. killed Iranian Gen. Qassem Soleimani in Iraq on Friday. Early Sunday, as Iran threatened to retaliate, President Donald Trump tweeted the U.S. was prepared to strike 52 sites in the Islamic Republic if any Americans are harmed.


The U.S. has blamed Iran for a wave of provocative attacks in the region, including the sabotage of oil tankers and an attack on Saudi Arabia's oil infrastructure in September that temporarily halved its production. Iran has denied involvement in those attacks.



The proportion of their spending that U.S. consumers devote to energy has fallen to a historic low of 2.5%, down from more than 6% in the early 1980s, economists at Credit Suisse noted in a research report.

"A global supply shock would be an unwelcome development, but we would not expect it to lead to an imminent recession," the economists wrote. "There have been several dramatic shifts which ought to make the U.S. economy resilient to rising oil prices. Strong household balance sheets, an accommodative Fed and a large domestic energy sector reduce the risks that an oil shock tips the economy into recessions.


“Higher oil prices are still very much a negative for the global economy, and that will reverberate back on us," said Mark Zandi, chief economist at Moody's Analytics.



Compared to other methods of attack, targeting energy sites also “doesn't kill a lot of people,” Krane said. “It’s capital-intensive, it’s not people-intensive. It's a safer option in terms of the virulence of reprisal.”


Global stock markets have been sliding since Friday. European indexes were down over 1% on Monday after Asia closed lower. Wall Street was expected to slide again on the open, with futures down 0.6%.

Brent crude was up $1.07 at $69.67 a barrel, putting it up almost 6% since before the Iranian general's killing.

At the same time, experts say the effect of a Middle Eastern geopolitical crisis on oil prices isn't as great as it once was. The U.S. energy industry can ramp up shale oil production in places such as Texas, for example.


Tensions between the U.S. and Iran have steadily intensified since Trump's decision to withdraw from a 2015 nuclear deal and restore crippling sanctions.

But after the attack on Saudi Arabia's crucial Abqaiq oil processing facility in September, Halff said the “market was able to dismiss it pretty quickly, partly because there was a perception that shale oil was pretty abundant.”

After that incident, the price of oil surged over 14% in a day, but lost those gains over the next two weeks.

Halff said the killing of Iran's top general is different.



AP economics writer Martin Crutsinger in Washington contributed to this report.