LONDON: Oil prices fell more than one per cent on Monday after Saudi Arabia’s de facto leader said war with Iran would destroy the world economy and hinted instead at a non-military solution.

Washington, Riyadh, Berlin, London and Paris blame Iran for attacks that damaged the Saudi oil sector on Sept 14 and forced the world’s largest crude exporter to sharply reduce production.

Stock markets were mostly higher as traders tracked the latest twists and turn regarding the US-China trade war. The dollar was mixed against main rivals.

“In terms of geopolitical concerns, common sense is prevailing for now in Saudi Arabia,” noted analyst Naeem Aslam at traders ThinkMarkets, in reference to the comments by Saudi Arabia’s crown prince in an interview with CBS show 60 minutes broadcast over the weekend.

Mohammed bin Salman said war would be catastrophic for global growth.

Mohammed bin Salman says war would be catastrophic for global growth

‘Unimaginably high’

“Oil supplies will be disrupted and oil prices will jump to unimaginably high numbers that we haven’t seen in our lifetimes,” the prince said.

“The region represents about 30 per cent of the world’s energy supplies, about 20 per cent of global trade passages, about four per cent of the world GDP. Imagine all of these three things stop,” he said.

“This means a total collapse of the global economy and not just Saudi Arabia or the Middle East countries.”

Iran’s oil minister meanwhile on Sunday ordered his country’s energy sector to be on high alert to the threat of “physical and cyber” attacks.

Bijan Namdar Zanganeh said “it is necessary for all companies and installations of the oil industry to be on full alert against physical and cyber threats”, in a statement published on the oil ministry’s Shana website.

Tehran has denied any link to the Saudi strikes, which were claimed by Houthi rebels in Yemen. Iran supports the rebels against a Saudi-led coalition that has been fighting the Houthis since 2015.

“Oil has been amazing everyone over the last couple of weeks, having surged on the back of the attack on the Saudi oil facilities before reversing the entirety of these gains, despite the country temporarily losing half its output,” Craig Erlam, senior market analyst at Oanda trading group, said Monday.

“Traders are clearly not particularly concerned about risk premiums in oil ... Instead, the focus again seems to be shifting back to the demand dynamics and the risk of further downgrades as the global economic slowdown takes hold,” he added.

Meanwhile, Fitch Ratings on Monday downgraded Saudi Arabia’s credit rating by one notch, citing “rising geopolitical and military tensions in the Gulf region” after unprecedentedly large attacks on the kingdom’s oil industry.

The agency said in a statement it had lowered Saudi Arabia’s long-term foreign currency issuer rating from A+ to A, with a stable outlook.

US-China trade war

On the stock markets, investors appeared cautiously optimistic about an easing of tensions in the US-China trade war, with prices on Wall Street opening higher and the blue-chip indices in Germany and France also in positive territory.

But analysts said investors would probably remain cautious for the time being.

“The Sino-US trade negotiations have been full of twists and turns,” said Zhang Gang, an analyst with Central China Securities.

Published in Dawn, October 1st, 2019