Crude Jumps on Rising Terrorism Fears in Middle East

However, one analyst says reports of sabotage are overblown: File Image/Pixabay

A loose connection between Iran and a series of drone "terrorism" strikes against pipeline infrastructure in Saudi Arabia caused oil prices on Tuesday to rise sharply: Brent climbed 1.7 percent at $71.39 per barrel, while West Texas Intermediate settled up 1.2 percent at $61.86 per barrel.

Khalid al-Falih, energy minister for the Saudis, described attacks on two oil pumping stations near Riyadh for the country's East-West pipeline as being performed by seven bomb-laden drones; although production wasn't interrupted and nobody was injured, he said "This act of terrorism and sabotage in addition to recent acts in the Arabian Gulf do not only target the kingdom but also the security of world oil supplies and the global economy."

A Yemeni Houthi-run TV channel announced on Tuesday morning it had launched the attacks, prompting al-Falih to state that "These attacks prove again that it is important for us to face terrorist entities, including the Houthi militias in Yemen that are backed by Iran."

Tuesday's events come on the heels of two Saudi oil tankers being among four vessels that were targeted in an unspecified "sabotage attack" on Sunday off the United Arab Emirates coast of Fujeirah - as well as Tehran announcing last week it would breach the 2015 Iran nuclear deal and return to higher levels of uranium enrichment if Europe doesn't protect it from the impact of the U.S. sanctions.

This, combined with a U.S. strike group carrier being dispatched to the Arabian Gulf, caused Jeremy Hunt, foreign minister for Britain, to tell media, "We are very worried about the risk of a conflict happening by accident with an escalation that is unintended."

Meanwhile, it could be that the crude analytical community will have to make do with worrying over Iran rather than the trade conflict between the U.S. and China: in the wake of widespread speculation that a breakdown in talks between the two countries was imminent, Wang Yi, state councillor for China, suggested that Beijing is hoping to reach a compromise: "Both countries' negotiating teams have the ability and wisdom to resolve each other's reasonable demands."

For his part, U.S. president Donald Trump said he expects to speak to Chinese president Xi Jinping at a G20 summit in late June and have "probably a very fruitful meeting."

But even though geopolitical worries may have shifted, at least one expert maintained a cool outlook by noting that it will take a lot more than a few drones and outraged comments from an energy minister to really goose crude prices.

Dr. Ellen Wald, president of Transversal Consulting, told Bloomberg radio that what has happened of late in the Middle East compared to the rhetoric "has been relatively minor; I think we're making a very big deal out of things that haven't really shown to have a great effect."

She added that the incidents "aren't really causing much movement in oil prices" and that oil markets "are waiting for something significant to happen."