Headlines with the word "missile" are taken seriously... Investors pumped up the price of an oil barrel by the most ever in a single day (about 15%) on Monday — a weekend drone strike had knocked off 1/2 of Saudi Arabia's oil production. Rebels in Yemen took credit for the violence, but American officials believe Iran was really behind the moves.
The global economy = oil-thangry (thirsty + angry)... and there was suddenly less oil. That scarcity caused a rapid snatching up of oil contracts which drove up oil prices. We don't think this will last long — here's why:
- The shortage isn't huge: 6% of the world's oil supply was cut off by the attacks, aka 5.9M barrels per day. That means 94% of oil is still pumping.
- The shortage will only last days/weeks (not months): The Saudis sent a SWAT team of workers to get most production back online in days, with 100% coming within weeks.
- We've got a spare tank: America has 600M barrels of emergency oil. And we're not even planning to tap them unless more attacks/shortages occur.
Markets can handle this – but they can't handle a war... Although Saudi Arabia and Iran are the direct foes, the US (#1) backs Saudi Arabia (#2) and Russia (#3) backs Iran (#7). Those make up 4 of the top 7 oil-producing countries of the world. And President Trump's tweet that the US is "locked and loaded" already boosted American defense stocks.