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Explainer: Why the US military’s killing of Qassem Soleimani sent stock markets falling, oil prices surging

SINGAPORE — The optimism global investors felt entering into 2020 may have all but evaporated with the killing of a top Iranian general in an air strike on Baghdad airport — a military operation authorised by United States President Donald Trump.

A demonstrator holding a picture of Supreme Leader Ayatollah Ali Khamenei with Iranian Major-General Qassem Soleimani, during a protest against the latter's assassination on Jan 3, 2020.

A demonstrator holding a picture of Supreme Leader Ayatollah Ali Khamenei with Iranian Major-General Qassem Soleimani, during a protest against the latter's assassination on Jan 3, 2020.

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SINGAPORE — The optimism global investors felt entering into 2020 may have all but evaporated with the killing of a top Iranian general in an air strike on Baghdad airport — a military operation authorised by United States President Donald Trump.

Oil prices surged and Asian markets tumbled on Friday (Jan 3) following news of the attack, a reverse from the rally in global stock markets on Thursday, which was the first day of trade for the new year.

TODAY explains the significance of the general’s death and what could happen next.

WHO IS THIS IRANIAN GENERAL?

Major-General Qassem Soleimani, who was head of the elite Quds Force and architect of Iran’s spreading military influence in the Middle East, was killed along with several officials from Iraqi militias backed by Iran.

Seen as one of Iran’s most powerful men, he was hailed as a hero in Iran and the country’s supreme leader, Ayatollah Ali Khamenei, once called him a “living martyr of the revolution”.

His career began when he joined the Islamic Revolutionary Guard Corps soon after the 1979 revolution in Iran.

Over the years, he has built a reputation for clandestine operations abroad, and has quietly extended Iran’s military reach into other Middle East conflicts, such as in Iraq and Syria.

The US has often considered Soleimani as responsible for the deaths of hundreds of American soldiers during the Iraq war as well as for hostile Iranian activities throughout the Middle East.

In one recent conflict at the end of December, Shia militias — who have a history of being trained by Soleimani’s Quds Force — attacked an Iraqi military base, resulting in the death of one American civil contractor.

In response, the US States launched airstrikes against Shia military bases, killing 25 militia members and injuring more than 50.

On New Year’s Eve, Shia militias and their supporters stormed the US Embassy compound in Baghdad and although no one was killed, Mr Trump warned that Iran bore responsibility for the act.

WHAT DOES HIS DEATH MEAN?

Given the importance of Soleimeni to the Iranian regime, observers say that there will be pressure on Iran to retaliate.

The fear is that this will lead to an escalation of tensions in the Middle East region.

Mr Trump took an action that former US presidents George W Bush and Barack Obama had rejected, fearing it would lead the country to war with Iran.

Mr Khamenei has issued a statement calling for three days of public mourning and then retaliation.

“His departure to God does not end his path or his mission,” the statement said, “but a forceful revenge awaits the criminals who have his blood and the blood of the other martyrs last night on their hands.”

MARKETS SPOOKED

Fears of an escalating conflict have sent oil prices up as any trouble in the Middle East, an oil-producing region, could affect global oil output.

“An indirect response is the most apparent course of action, and oil installations and tankers were my first thoughts,” said Mr Jeffrey Halley, senior market analyst for Asia Pacific at forex firm Oanda.

Oil prices shot up as high as 4 per cent early Friday morning, almost hitting US$70 (S$95) a barrel.

It has come down slightly since then, with Brent crude up 3.53 per cent, trading at US$68.59 a barrel at the close of Asian trade.

US crude oil prices have also come down from its peak of US$63.77 a barrel to US$63.32, an increase of 3.5 per cent.

Mr Edward Lim, chief investment officer of Covenant Capital, said: “This attack merely highlights the geopolitical risk of the oil markets, and the market undergoing a possible oil shortage in the first to second quarters of 2020.”

The last time oil prices jumped was in September last year, when coordinated strikes on key Saudi Arabian oil facilities, among the world’s largest energy production centres and an ally of the US, disrupted half of the kingdom’s oil capacity.

This translated to about 5 per cent of the daily global oil supply.

Stock markets in Asia, on the other hand, ended in the red. Singapore’s Straits Times Index closed 0.4 per cent lower on Friday, and Hong Kong’s Hang Seng Index fell 0.3 per cent.

Mr Steven Leung, executive director of UOB Kay Hian in Hong Kong, said: “Investors are worried that the situation in Iran will worsen, since there could be some retaliation after the US attack.

“People will want to cut risk ahead of the weekend. Stocks have rallied a lot in the past month or so, so any bad news flow is a reason to take profit.”

Related topics

Donald Trump air strike USA Iran oil price

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