Oil prices rose strongly as tension between Saudi Arabia and Iran increased after Saudi Arabia executed a prominent Shia Muslim cleric.
Brent crude oil futures rose as much as 3.3% to $38.50 a barrel, the global benchmark’s highest price for about three weeks.
Ric Spooner, an analyst at CMC Markets in Sydney, said there was no imminent threat to oil production but that the dispute was a cause for concern.
“It may be seen by the market as an incremental step in a possible longer-term escalation of problems in the core oil producing nations of Saudi Arabia and Iran,” Spooner told Bloomberg News.
Saudi Arabia cut diplomatic ties with Iran after protestors attacked its embassy in Tehran on Saturday, setting fire to the building. The attack was triggered by the execution of Sheikh Nimr al-Nimr, a critic of the Saudi monarchy. He was killed with 46 others accused of terrorist offences.
The Saudi foreign minister, Adel al-Jubeir, said Shia-ruled Iran’s diplomatic staff in Saudi Arabia had been given 48 hours to leave the Sunni-led kingdom. The dispute is the worst crisis between the regional powers, led by competing branches of Islam, since the 80s.
Saudi Arabia and Iran are the most powerful members of Opec and are locked in a battle for regional influence. Analysts have said the dropping of Western sanctions against Iran will add to global oil reserves this year.
Oil rose despite weak manufacturing data from China that caused European shares to fall. Brent crude fell 35% last year as demand from China slowed and Opec, led by Saudi Arabia, maintained production despite a growing global oil glut.
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