A crude dynamic showed a few signs of an upturn in the global oil market amid escalating diplomatic tensions between Saudi Arabia and Iran. On the first trading day of 2016, oil futures recovered by over 3% on the back of the reported diplomatic row between the Middle East Kingdom and Iran.
The Saudi-Iranian crisis was triggered by the execution of 47 prisoners in Saudi Arabia who were accused of terrorism offences. Among the convicted was sheikh Nimr Baqr al-Nimr, a cleric and leader of the Shia minority in Saudi Arabia. Sheikh Nimr was a supporter of the mass anti-government protests that erupted in Eastern Province in 2011, which was a reason for his arrest. The death penalty for Nimr sparked off protests of the Shiite Muslims around the world.
In Iran, the clashes ended up with an assault on the Saudi embassy. Besides, protesters set the Saudi consulate on fire. The Kingdom immediately responded with the announcement that diplomatic relations with Iran have to be broken. The decision was backed by Bahrein, one of the main Saudi allies. Gulf experts judge the situation to be the worst crisis between the two countries, which have been already de facto involved in the armed conflicts against each other. It is the standoff between the political regimes in Syria and Yemen.
On the whole, any conflict in the Middle East, in particular involving key global oil producers, pushes oil prices up. Geopolitical risks inevitably make global crude prices increase. So the oil market started the new year on a positive note, though the oil rally came to a halt later.
