Oil prices surge after US strike kills Iranian general Soleimani

'This is more than just bloodying Iran's nose but an aggressive show of force'

TOPSHOT-IRAQ-IRAN-POLITICS-UNREST-US A mock US flag is laid on the ground for cars to drive on in the Iraqi capital Baghdad following news of the killing of Iranian Revolutionary Guards top commander Qasem Soleimani in a US strike on his convoy at Baghdad international airport | AFP

Oil prices soared more than four per cent on Friday following news that the US had killed a top Iranian general, fanning fresh fears of a conflict in the crude-rich region.

The head of Iran's Quds Force, Qasem Soleimani, was hit in an attack on Baghdad's international airport early Friday, according to Hased, a powerful Iraqi paramilitary force linked to Tehran.

Later, Donald Trump tweeted a picture of the American flag, and the Pentagon said he had ordered Soleimani's killing.

Brent surged 4.4 per cent to $69.16 and WTI jumped 4.3 per cent to $63.84 as investors grow increasingly worried about the effects of a possible flare-up in the tinderbox Middle East on supplies of the commodity.

Both contracts later pared the gains but remained well up. "This is more than just bloodying Iran's nose," said AxiTrader's Stephen Innes. "This is an aggressive show of force and an outright provocation that could trigger another Middle East war."

The killing of Soleimani is a dramatic escalation of tensions between the United States and Iran and comes after a pro-Iran mob this week laid siege to the US embassy in Iraq following deadly American air strikes on the hardline Hashed faction.

The attack on the embassy highlighted new strains in the US-Iraqi relationship, which officials from both countries have described to AFP as the "coldest" in years.

Oil prices saw a record surge in September after attacks on two Saudi Arabian facilities briefly slashed output in the world's top exporter by half, with Trump blaming Iran for the attack and previous other blasts on tankers in the Gulf last year.

The crisis also comes as tensions between the US and North Korea worsen, with Kim Jong Un declaring a self-imposed moratorium on nuclear and intercontinental ballistic missile tests had ended, with US talks going nowhere.

"We are waking up to a less safe world than it was only hours ago, especially if we combine this with simmering tension in the Korean peninsula," Innes added.

The drama sent investors rushing for the hills and safe-haven units rallied with the yen up 0.7 per cent against the dollar and gold climbing more than one percent.

High-risk currencies retreated against the greenback, with South Korea's won down 0.6 per cent, Australia's dollar down 0.4 per cent and the South African rand down more than one per cent.

Equities were mixed, having been enjoying the second day of the year rallying on trade optimism.

Hong Kong fell 0.2 per cent by the break, while Shanghai shed 0.3 per cent. Singapore retreated 0.5 per cent and Taipei dropped with Mumbai.

But Seoul, Sydney, Wellington, and Manila were in positive territory.

Markets had all been well up before news of the strike, thanks to ongoing optimism fuelled by the China-US trade agreement, looser central bank monetary policies and easing Brexit worries.