Increased tensions in the Middle East have fuelled oil prices this week. On 16 May, crude oil prices increased more than 1% as a Saudi-led coalition launched air strikes in retaliation for recent attacks on its crude infrastructure.

Brent crude futures settled at $72.62 a barrel, up 85 cents, or 1.18%, after touching their highest level in three weeks, Reuters reported, adding that US West Texas Intermediate (WTI) crude futures settled at $62.87 a barrel, gaining 81 cents, or 1.37%, after hitting its strongest level in two weeks.

On 14 May, Saudi Arabia reported armed drones attacked two pumping stations in the kingdom. A day earlier, Riyadh said two of its oil tankers were sabotaged off the coast of the UAE.

The US has reportedly warned shipping companies that Iran or countries or groups Tehran is backing could be targeting maritime traffic in the Gulf and said it deployed an aircraft carrier strike group and B-52 bombers in the area for support, Time reported.

The main issue driving the price is the drone strikes in the Middle East, Justin Urquhart Stewart, director at Seven Investment Management in London, told New Europe by phone on 16 May.

“I think that’s going to be the main issue over the next few months. What’s going to happen in terms of drone strikes and other issues, what’s happened with the other carrier going in, that all is winding up the level of nervousness,” he said. “And what always worries me in these sort of situations you have in particular with Iran where stakes are made with regards to local attacks and in normal situations that would be dangerous. But having a president like (Donald J.) Trump in charge that makes it even more worrying because we don’t have the quality of politician to actually manage this properly, much more you’re going see kneejerk reaction from a populist leader,” Urquhart Stewart argued.

The drone attacks added to tension in the Persian Gulf where Washington has tightened sanctions against Iran. The US stopped granting waivers to buyers of Iranian oil early this month after Trump pulled the US out of the landmark 2015 nuclear deal a year ago. Tehran reportedly announced last week it would gradually withdraw from the multi-lateral accord intended to curb its nuclear program, unless the remaining parties step in to support Tehran economically.

During their meeting in Sochi on 14 May, Secretary of State Mike Pompeo and his Russian counterpart, Foreign Minister Sergey Lavrov sparred over Iran and the Joint Comprehensive Plan of Action, regarding Tehran’s nuclear ambitions.

Pompeo had earlier travelled to Belgium to talk with European officials about the growing threat posed by Tehran. “We have many difference here,” CBS quoted Lavrov as saying. “We will continue to discuss the situation,” he added. He expressed hope that certain agreements could be reached with the support of Moscow and Washington. Lavrov criticized the US withdrawal from the international pact, saying it was a mistake to withdraw from the Iran nuclear deal. He also slammed US sanctions punishing countries doing business with Iran.

Meanwhile, Pompeo said the US “fundamentally do not seek a war with Iran.” “We want the regime to stop conducting assassination campaigns,” he said.

Traders are watching the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC countries led by Russia for signs whether they will continue with supply cuts that have boosted prices more than 30% so far this year, Reuters reported, adding that the next meeting of OPEC’s joint monitoring committee will assess the commitment of member and non-member countries to the production cuts. The oil cartel said on 14 May that world demand for its oil would be higher than expected this year.

Urquhart Stewart told New Europe that he expects prices to remain above $70 per barrel. “For so many reasons, I think that there’re going to be political concerns over the summer and that’s going to act as support for the price. I can’t see why this would be discounted yet,” he said.

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