Irish shares take hit and price of gold soars amid rising tensions between US-Iran

Crude oil jumped for a second day, the price of gold rose to almost a seven-year high, and European stock markets fell amid the flare-up in tensions between the US and Iran.

Irish shares joined in the sell-off, with Ryanair falling 1.5% as the airline is vulnerable to the potential of increased fuel costs if crude prices continue to trade at an elevated level.

But Irish banks also fell back -- Bank of Ireland and AIB closed 3% and 1.4% lower -- as investors across Europe bought so-called safe stocks, instead.

"There have been some signs of a potential cooling in tone led by the UK, yet the US and Iran have shown little willingness to step back from the brink," said Joshua Mahony, senior market analyst at online broker IG, and markets are "transfixed on that US-Iran issue for now".

However, in Ireland, not all shares fell, with Dalata Hotel Group gaining in the session, while the fallout for CRH -- which earns a large slice of its profits in the US -- falling only slightly.

And US stock markets were little affected, as investors judged the US economy would escape any significant fallout,  said Capital Economics in London.

@akaebube this happened in Tehran, Iran today. The biggest funeral ever. That crowd is mind boggling.... https://t.co/N2nZORNLbs

— Abdulaziz Haji (@abdulazizhaji09) January 6, 2020

Oil prices jumped by about 1% in the latest session, pushing the price of Brent crude above $70 a barrel, as rhetoric from the US, Iran and Iraq fanned tensions in the Middle East after the US air strike killed a top Iranian military commander. Brent crude soared to a high of $70.74 a barrel and traded at $69.36, up 76 cents on the day, later in the session.

The gains extended Friday’s more than 3% advance after a US airstrike in Iraq killed Iranian military commander Qassem Soleimani, heightening concerns about an escalation in conflict in the Middle East and the possible impact on oil supplies.

The region accounts for nearly half of the world’s oil production, with a fifth of the world’s oil shipments passing through the Strait of Hormuz. US President Donald Trump has threatened to impose sanctions on Iraq, the second-largest producer in the Organisation of the Petroleum Exporting Countries if US troops were forced to withdraw from the country. He also said that the US would retaliate against Iran if Tehran were to strike back after the killing.

“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”.

The Economist Intelligence Unit (EIU) raised its first-quarter projection for Brent by $5 to $70 a barrel, assessing that Iran is likely to want to avoid open conflict.

“We maintain our forecast that the two countries are likely to avoid outright war. Iran is not in a position financially, after more than a year of crippling US sanctions, to finance a lopsided war with the US,” EIU global economist Cailin Birch wrote in a note.

In Ireland, energy supplier Naturgy estimates the price of wholesale gas slumped to a 10-year low last year, but crude oil price rose 11% from 2018. But it warned the US-Iran tensions could send oil prices higher.

- Additional reporting by Reuters