Following the siege of the U.S. Embassy compound in Baghdad, the United states retaliated by deploying about 750 U.S. soldiers in the Middle East. Further on Jan 3, Iraq’s Hashed al-Shaabi paramilitary force confirmed that the head of Iran’s Quds Force, Qasem Soleimani, was killed in an airstrike on Baghdad’s international airport, following direct orders from President Donald Trump.
Iraq and Iran have been in conflict since 1980 on several issues including, land, oil and water ways. However, America had provided support to Ba'athist Iraq during the Iran-Iraq War including billion dollars' worth of economic aid, technology, military intelligence, and special operations training. Nevertheless, Iran has had no formal diplomatic relationship with the United States since 1980 and the death of Soleimani is likely to turn the proxy war into a direct one.
As this war intensifies, it will lead to a shutdown of oil production in the Middle East, disrupting the stock market heavily. However, this will drive oil prices north and increase demand for safe-haven assets like gold.
Oil Prices Spike
Iran, an oil-rich country of the Persian Gulf, holds a significant position in Organization of the Petroleum Exporting Countries (OPEC). It was one of the five countries involved in signing of the OPEC agreement in September 1960. Notably, any tension in the Middle East disrupts production of oil, eventually leading to the rise in crude price.
In 2019, crude prices surged to a record high in September on account of an attack on Saudi Arabia’s Aramco facilities, which cut the world's top exporter’s output by half for nearly a week. Earlier in 2019, blasts on tankers in the Gulf had also led to a rally in oil price. President Trump blamed Iran for this attack, and geo-political tensions got aggravated.
Brent crude futures jumped 4.4% to $69.16 and U.S. West Texas Intermediate (WTI) crude futures rose 4.3% to $63.84, post the news of America’s attack on Baghdad’s international airport.
With oil prices rising, thanks to the Middle East tension, investors can take a look at energy stocks. Some of the prominent stocks worth buying is listed below.
Talos Energy Inc. (TALO - Free Report) is an independent exploration and production company that produces crude from Gulf of Mexico and offshore. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 33.2% upward over the past 60 days.Talos Energy flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Parker Drilling Company (PKD - Free Report) provides contract drilling and drilling-related services and rental tools and services to the energy industry. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 56.9% upward over the past 60 days.Parker Drilling carries a Zacks Rank #2 (Buy).
Ring Energy, Inc. (REI - Free Report) is an exploration and production company that acquires, explores, develops, and produces oil and natural gas in Texas. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 7.3% upward over the past 60 days.Ring Energy has a Zacks Rank #2.
Gold Price to Rally
As oil prices move northward, this will lead to price hike of essential goods and commodities. And as inflation picks up, demand for safe-haven assets like gold increases. Needless to say, gold acts as a hedge against inflation. Spot gold prices jumped to $1,540.49 an ounce in Asia.
Also, gold acts as a hedge for investors during times of geo-political and economic crisis. This incident will encourage traders to buy gold, as there are speculations that the Iranian government will take retaliatory measures, which may eventually halt crude production and supply.
As gold prices are poised to grow these are the companies that can provide higher returns.
Sibanye Gold Limited (SBGL - Free Report) operates as a precious metals mining company in the United States and other South American and African countries. The company also produces palladium, platinum, and rhodium. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 18.2% upward over the past 60 days.EverQuote flaunts a Zacks Rank #1.
U.S. Gold Corp. (USAU - Free Report) operates as a gold mining company in the United States and also explores other minerals and metals like copper, silver, and zinc. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 31.7% upward over the past 60 days.U.S. Goldcarries a Zacks Rank #2.
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