As US airbases in Iraq reeled from an Iranian missile attack on Wednesday, experts fear the news could derail the Gulf’s latent economic recovery.
Brent crude jumped 1.4 percent to $69.21 per barrel in the middle of the Asian trade as two bases in Iraq were hit by ballistic missiles.
The Iraq attack happened just hours after the funeral service for Iranian commander Qasem Soleimani, who was killed by a US drone strike on Friday.
Gulf bourses tanked when they reopened on 5 January, the first trading day in the region after the Soleimani assassination.
Colin Foreman, deputy editor at GlobalData, data and analytics company, warned of negative consequences for the region’s economic outlook amid US-Iran tensions.
“While war may not happen, it is likely that investors will remain spooked long into 2020 and this will be a drag on private sector activity at a time when the region’s non-oil economy is forecast to drive economic growth,” Foreman said.
“Over the past five years, regional governments have been working hard to restructure and reform their economies so that they are less dependent on oil and gas and more attractive for private sector investment,” he said.
Foreman predicted that oil gross domestic product (GDP) could fare better in the coming months.
“Rising tensions typically mean an increase in oil prices, which will benefit oil-exporting countries. The problem is the potential oil price windfall comes with other negative economic consequences,” he said.
According to Ole Hansen, head of commodity strategy at Saxo Bank, the latest US-Iran developments signal “a worrying escalation in the Middle East with the markets now awaiting the response”.
The market reaction to Soleimani’s death was swift with Brent crude oil reaching $69.15, the highest level since the September Aramco attacks in Saudi Arabia.
“Gold’s safe-haven credentials meanwhile have given a renewed boost and it has built further on the late December rally to now stand less than one percent from the September peak at $1557/oz,” said Hansen.
“The combination of central bank stimulus and rising food and energy prices only add to our view that inflation or the risk of rising inflation will become a theme in 2020,” he added.
