Oil, safe havens surge as U.S. strikes kill Iranian commander

By Herbert Lash and Marc Jones

NEW YORK/LONDON (Reuters) – Oil prices surged as much as $3 a barrel as gold, the yen and safe-haven bonds all rallied on Friday after the U.S. killing of Iran’s top military commander in an air strike in Iraq ratcheted up tensions between Washington and Tehran.

Traders were spooked after the death of Major General Qassem Soleimani, head of the elite Quds Force who was also one of Iran’s most influential figures, and by Iranian Supreme Leader Ayatollah Ali Khamenei’s vow of revenge.

Mideast-focused oil markets saw the most dramatic moves, with Brent oil futures leaping as much 4.5% to $69.20 a barrel. That was the highest since the attacks on Saudi crude facilities in September, though the impact hit almost every asset class.

Europe’s broad STOXX 600 index fell as much as 1% and shares on Wall Street almost the same as New Year optimism, which had pushed equity markets to new records, evaporated.

The yen rose half a percent against the dollar to a two-month high, the Swiss franc hit its highest against the euro since September and gold prices  climbed to a four-month peak, racing past the key $1,550 an ounce level.

“Geopolitics has come back to the table, and this is something that could have major cross-asset implications,” said Salman Ahmed, Lombard Odier’s chief investment strategist.

“What is critical is how it pans out in the next few days,” Ahmed said. “Whether it turns into a theme depends on Iran’s reaction and then the U.S. response.”

Iran promised harsh revenge. Soleimani’s Quds Force and its paramilitary proxies, ranging from Lebanon’s Hizbollah to the PMF in Iraq, have ample means to mount a response.

In September, U.S. officials blamed Iran for attacking the oil installations of Saudi Aramco, the state energy giant and the world’s largest oil exporter. Iran has denied responsibility for the strikes and accused Washington of war-mongering.

The Trump administration then did not respond, beyond heated rhetoric and threats, and markets settled down within a week after Brent surged 14.6%, its biggest one-day percentage gain since at least 1988.

The U.S. government and others on Friday urged their citizens in the region either to return home or to stay away from potential targets and public gatherings.

U.S. Secretary of State Mike Pompeo said in a round of TV interviews that the United States remained committed to de-escalation with Iran but that it had needed to defend itself.

“He (Soleimani) was actively plotting in the region to take actions – a big action as he described it – that would have put dozens if not hundreds of American lives at risk. We know it was imminent,” Pompeo told CNN.

MSCI’s gauge of stocks across the globe shed 0.43%, while its emerging markets index lost 0.32%.

On Wall Street, the Dow Jones Industrial Average  fell 210.81 points, or 0.73%, to 28,657.99. The S&P 500  lost 18.86 points, or 0.58%, to 3,238.99 and the Nasdaq Composite <.IXIC> dropped 58.26 points, or 0.64%, to 9,033.93.

The global gauge and Wall Street indices set record closing highs on Thursday, extending the year-end rally in equities.

Brent  hit a peak of $69.50 a barrel, its highest since mid-September, though it later traded up $2.40 to $68.65.

West Texas Intermediate  crude  rose $2.20 to $63.38 a barrel, after earlier spiking to $64.09 a barrel, its highest since April 2019.

SCRAMBLE TO SAFETY

Yields on German Bunds and U.S. Treasuries – the world’s benchmark government bonds that are typically seen as the safest assets – fell sharply.

 

The 10-year Bund  yield fell 7 basis points to a two-week low of -0.299%, while Bund futures  were up 0.51 percent, at 172.13 euros.

Benchmark 10-year Treasury notes rose 23/32 in price to yield 1.802%, from 1.882% late on Monday.

The dollar index fell 0.08%, with the euro up 0.06% to $1.1177. The Japanese yen  strengthened 0.59% versus the greenback at 107.94 per dollar.

The focus on geopolitics meant markets paid little attention to stronger-than-expected data from France, where inflation rose 1.6% year-on-year in December, beating analysts’ expectations for a 1.4% rise.

German inflation figures were also higher, although unemployment in Europe’s largest economy rose more than expected.

The U.S. manufacturing sector contracted in December by the most in more than a decade, with order volumes crashing to near an 11-year low and factory employment falling for a fifth straight month, the Institute for Supply Management said.

Investors also were looking forward to the minutes of the U.S. Federal Reserve’s Dec. 10-11 meeting due at 2 p.m. (1900 GMT).

(Reporting by Herbert Lash, additional reporting by Sujata Rao and Dhara Ranasinghe in London and Diptendu Lahiri in Bengaluru; Editing by Dan Grebler)

U.S. says it disrupted ‘imminent attack’ with killing of Iran commander

 

By Ahmed Rasheed and Ahmed Aboulenein

BAGHDAD (Reuters) – Iran promised harsh revenge on Friday after a U.S. air strike in Baghdad on Friday killed Qassem Soleimani, commander of Iran’s elite Quds Force and architect of its growing military influence in the Middle East.

Soleimani, a 62-year-old general, was regarded as the second most powerful figure in Iran after Supreme Leader Ayatollah Ali Khamenei.

FILE PHOTO: Combination photo of Iranian Revolutionary Guard Commander Qassem Soleimani (L) and Abu Mahdi al-Muhandis, a commander in the Popular Mobilization Forces. REUTERS/Stringer/Thaier al-Sudani

The overnight attack, authorized by President Donald Trump, was a dramatic escalation in a “shadow war” in the Middle East between Iran and the United States and its allies, principally Israel and Saudi Arabia.

U.S. Secretary of State Mike Pompeo said the strike aimed to disrupt an “imminent attack” that would have endangered Americans in the Middle East. Democratic critics said the Republican president had raised the risk of more violence in a dangerous region.

Pompeo, in interviews on Fox News and CNN, declined to discuss many details of the alleged threat but said it was “an intelligence based assessment” that drove the decision to target Soleimani.

In a tweet, Trump said Soleimani had “killed or badly wounded thousands of Americans over an extended period of time, and was plotting to kill many more”, but did not elaborate.

The attack also killed top Iraqi militia commander Abu Mahdi al-Muhandis, an adviser to Soleimani.

It followed a sharp increase in longrunning U.S.-Iranian hostilities last week when pro-Iranian militiamen attacked the U.S. embassy in Iraq following a U.S. air raid on the Kataib Hezbollah militia, founded by Muhandis.

Iraq’s prime minister said that with Friday’s attack Washington had violated a deal for keeping U.S. troops in his country.

CONCERN OVER ESCALATION

Israel put its army on high alert and U.S. allies in Europe including Britain, France and Germany voiced concerns about an escalation in tensions.

U.S. officials, speaking on condition of anonymity, said Soleimani was killed in a drone strike. Iran’s Revolutionary Guards said he died in an attack by U.S. helicopters.

The U.S. embassy in Baghdad urged all American citizens to depart Iraq immediately.

Dozens of U.S. citizens working for foreign oil companies in the southern city of Basra were leaving the country. Iraqi officials said the evacuations would not affect output and exports were unaffected.

Oil prices jumped more than $3 a barrel over concern about disruption to Middle East supplies.

Khamenei said harsh revenge awaited the “criminals” who killed Soleimani and said his death would double resistance against the United States and Israel.

In statements on state media, he called for three days of national mourning and appointed Soleimani’s deputy, Brigadier General Esmail Ghaani, to replace him as Quds Force head.

‘STICK OF DYNAMITE’

Trump critics called the operation reckless.

“President Trump just tossed a stick of dynamite into a tinderbox,” said former Vice President Joe Biden, a contender in this year’s U.S. presidential election.

As leader of the Quds Force, the foreign arm of the Guards, Soleimani had a key role in fighting in Syria and Iraq.

Over two decades he was at the forefront of projecting the Islamic Republic’s military influence across the Middle East, acquiring celebrity status at home and abroad.

President Hassan Rouhani said the assassination would make Iran more decisive in resisting the United States, while the Revolutionary Guards said anti-U.S. forces would exact revenge across the Muslim world.

Hundreds of Iranians marched toward Khamenei’s compound in central Tehran to convey their condolences.

“I am not a pro-regime person but I liked Soleimani. He was brave and he loved Iran, I am very sorry for our loss,” said housewife Mina Khosrozadeh in Tehran.

In Soleimani’s hometown, Kerman, people wearing black gathered in front of his father’s house, crying as they listened to a recitation of verses from the Koran.

“Heroes never die. It cannot be true. Qassem Soleimani will always be alive,” said Mohammad Reza Seraj, a teacher.

Iraqi Prime Minister Adel Abdul Mahdi condemned the killings as an act of aggression that breached Iraq’s sovereignty and would lead to war.

Israel has long seen Soleimani as a major threat and Prime Minister Benjamin Netanyahu defended the U.S. action. Israeli Army Radio said the military was on heightened alert.

Russia’s Ministry of Defense called the killing a “short-sighted” step that would lead to escalations in the region.

PREVIOUS ATTACKS

The slain commander’s Quds Force, along with paramilitary proxies from Lebanon’s Hezbollah to Iraq’s Popular Mobilisation Forces grouping of Iran-backed militias – battle-hardened militias armed with missiles – has ample means to respond.

In September, U.S. officials blamed Iran for a missile and drone attack on oil plants of Saudi energy giant Saudi Aramco. Washington also blamed Tehran for earlier raids on Gulf shipping.

Iran has denied responsibility for the strikes and accused Washington of warmongering by reimposing crippling sanctions on Iran’s main export, oil, in order to force Tehran to renegotiate a deal to freeze its nuclear activities.

Soleimani had survived several assassination attempts by Western, Israeli and Arab agencies over the past two decades.

The Quds Force, tasked with operating beyond Iran’s borders, shored up support for Syria’s President Bashar al-Assad when he looked close to defeat in the civil war raging since 2011 and also helped militias defeat Islamic State in Iraq.

Soleimani became head of the force in 1998, after which he quietly strengthened Iran’s ties with Hezbollah in Lebanon, Syria’s government and Shi’ite militia groups in Iraq.

(Reporting by Ahmed Rasheed and Ahmed Aboulenein; Additional reporting by Idrees Ali, Susan Heavey, Lisa Lambert and Mary Milliken in Washington, Parisa Hafezi and Michael Georgy in Dubai, Maha El Dahan in Baghdad, Stephen Farrell in Jerusalem, Polina Ivanova in Moscow; Writing by Samia Nakhoul and Frances Kerry; Editing by Robert Birsel, Raju Gopalakrishnan, Mike Collett-White, William Maclean)