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Iran tensions

Iran's missile strike sends gold and oil prices up

Investors shift to risk-off mode amid escalating tensions in the Middle East

West Texas Intermediate, the global oil benchmark, marked $65 per barrel at one point on Jan. 8, up 10% from a month ago.   © Reuters

TOKYO -- The Iran-U.S. hostilities are creating fears of geopolitical risks, sending crude oil prices up but not touching already high fees for the tankers used to ship the crucial commodity.

On Wednesday, Iran landed missile strikes on U.S. military facilities in Iraq, retaliation for the assassination of a top Iranian commander earlier this month.

Amid concerns about an outbreak of war and a slowing of the global economy, investors are quickly switching to risk-off mode.

Meanwhile, prices of some commodities sensitive to situations in the Middle East are rising.

West Texas Intermediate, the global oil benchmark, marked $65 per barrel at one point on Wednesday, up 10% from a month ago. An oil industry analyst said the increase reflects investor anxiety that oil supplies from the Middle East might decrease because of the hostilities.

"If tensions further escalate, it is possible Iran will attack tankers or oil-processing facilities in Saudi Arabia," the analyst said. "Reflecting the fear, I don't think the oil price will be lower than $63."

There is speculation that Iran might block shipping in the Strait of Hormuz, through which 20% of the global oil supply travels. Analysts say this is unlikely since China and India, which have good relations with Iran, also use the narrow strait that leads to the Gulf of Oman and then to the Arabian Sea.

The speculation, however, has been enough to lift oil prices.

Charter fees for tankers that travel between the Middle East and East Asia have been stable at around $105,000 per day, according to industry sources.

The charter fees for tankers that travel between the Middle East and East Asia have been stable.   © Reuters

"The charter fees are well above the break-even point," said Ryota Himeno, an analyst at JP Morgan Securities. Himeno said this point is around $30,000 to $35,000 per day. "This is partly because traders are rushed to secure tankers in preparation for escalating tensions in the Middle East."

The Baltic Dry Index, which measures prices for bulk carrier service, on Wednesday fell sharply to 791 from 976 on Thursday. The index is down 50% over the past month.

Himeno said the plunge reflects China's weakening demand for coal and iron ore amid an economic slowdown. "The tanker market is very sensitive to situations in the Middle East and Chinese demand," said Ryo Ebihara, president of Trump Data Service, a maritime market research firm.

Gold, known as a haven asset, has risen to $1,604 per ounce, up 5% from a week ago. Gold market analyst Koichiro Kamei said investors are buying gold due to increasing geopolitical risks. Kamei said that "gold prices are likely to hit $1,640" if the Iran-U.S. hostilities further escalate.

The price of copper is at around $6,150 per ton, up 6% from a month ago, reflecting investors' hopes that the U.S. and China will sign their "phase one" trade accord on Jan. 15. But Tatsufumi Okoshi, a senior economist at Nomura Securities, warns copper faces a downturn risk should stocks continue to fall amid the Iran-U.S. situation.

Asia's major stock indexes lost ground on Wednesday.

Japan's Nikkei Stock Average finished 1.6% lower than Tuesday's close.

South Korea's Kospi and China's Shanghai Composite were both off a little over 1%, while the Taiwan Stock Exchange Weighted Index fell 0.5%.

Additional reporting by Jada Nagumo in Tokyo.

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