In light of recent escalations between Iran and U.S. involving an American-sanctioned drone strike on the Islamic Revolutionary Guard Corps commander Qassem Soleimani, oil companies in Iran have been on edge as they anticipate potential attacks on oil rigs.
For instance, Exxon Mobil (NYSE: XOM) has been monitoring the situation and has instituted safeguards to provide security to protect its employees, a spokeswoman said.
In fact, over the past few months, Exxon has been building a $50 billion oil operation and producing 400,000 barrels of oil a day at the West Qurna 1 field in Iraq.
"The market is concerned about the potential for retaliation, and specifically on energy and oil infrastructure in the region," said Antoine Halff, a Columbia University researcher and former chief oil analyst for the International Energy Agency. "If Iran chose to incapacitate a major facility in the region, it has the technical capacity to do so."
Although the rising military tensions are a threat to oil rig workers' lives, it has been a major driver behind higher oil prices. The global benchmark for crude oil rose to more than $70 a barrel on Jan. 6 for the first time in over three months, with jitters rising over the escalating military tensions between Iran and the United States.
After the fact that Iran said over the weekend it will no longer honor the 2015 nuclear agreement, Iranian oil rigs may be a major target for U.S. retaliation. Conversely, oil rigs or military bases in the U.S. themselves may be a target, especially since this attack was unwarranted.
"The situation brings lots of uncertainty and geopolitical tea-leaf reading on reactions. While the closure of the Strait of Hormuz remains a very unlikely event, the deterioration in Iraq bears supply risks," said Norbert Rucker, head of economics at Swiss bank Julius Baer. "Geopolitics tend to be a temporary force on oil markets and we believe this time is no different. We raise our near-term forecast to $65 per barrel, and maintain a neutral view."