Just three days into the new year, Donald Trump ordered an airstrike that killed Iran’s most powerful general in the early hours of Friday last week. Qassem Suleimani, who was a commander of the Quds Force, was hit by the drone strike near Baghdad International Airport. Following the incident, crude oil price rallied 3.1% to USD63.05 and remained volatile, plunging 4.9% to USD59.61 on Wednesday, below the USD60 mark.

US-Iran Tensions

On 1st January, US President Donald Trump threatened Iran by tweeting that “Iran will be held fully responsible for lives lost, or damage incurred, at any of our facilities” and said that Iran will pay “a very big price”. The next day, Trump tweeted a US flag without any comments, and later the US department of defense released an immediate statement saying that the US military, at the direction of the US President, decided to take a defensive action to protect US personnel abroad by killing Qasem Soleimani as he was allegedly actively developing plans to attack American diplomats and service members throughout the region in Iraq.

Suleimani was a commander of the Quds force, an elite, external wing of Iran’s Revolutionary Guards, which the Trump administration designated a terrorist organization in April last year. Many consider Suleimani to have been the second most powerful person in Iran, behind Iran’s supreme leader, Ali Khamenei. Through a mix of security operations and diplomatic coercion, he was more responsible than anyone else for projecting Iran’s influence in the region (The Guardian, 3 Jan).

The Iranian president Hassan Rouhani said in a statement that “Suleimani’s martyrdom will make Iran more decisive to resist America’s expansionism and to defend our Islamic values. With no doubt, Iran and other freedom seeking countries in the region will take his revenge.” (The Guardian, 3 Jan).

Iran retaliates by firing missiles at US forces in Iraq

Since the incident, Iran retaliated by firing more than a dozen ballistic missiles at two Iraqi air bases housing US forces on Wednesday (9 Jan). Washington and Tehran both confirmed that Iran was the sources of the missiles, however the extent of the damage was unclear. Khamenei said the strikes were a “slap in the face” of the US and not sufficient retaliation for the killing of Suleimani last week. Meanwhile, Trump said that no Americans were harmed in the attack.

Oil prices become volatile, affected by the tension

The oil price rallied 3% to USD63.05 and continued to surge on Monday this week, rising another 0.4% to USD63.27. However, the oil price erased earlier gains as it fell 0.9% on Tuesday, then sank the most in three months, plunging 4.9% to close below the USD60 mark at USD59.61 yesterday. Global benchmark Brent Crude in London hit a three-month high of almost USD72 a barrel immediately after the attack, in which 10 missiles struck the Ayn al-Asad based in western Iraq and another facility in Erbil.

Gain leveraged exposure to the Malaysian oil and gas sector

The oil and gas counters in Malaysia became volatile following the recent development. Early this week, Hibiscus Petroleum continued last week’s rally, surging another 5.5% on Monday, hitting its year-high of RM1.05. However, on Thursday, the shares erased Wednesday’s 3% gain, falling 3.4% to RM0.995 as at the time of writing. Likewise, Velesto’s share price snapped yesterday’s 2.6% gain, falling 1.3% to RM0.390 on Thursday morning.

Source: Macquarie Research - 9 Jan 2020