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Oil prices rose sharply on Wednesday after the Pentagon authorised dependants of service members in parts of the Middle East to leave the region amid fears of an escalation between the US and Iran.
Brent crude, the international oil marker, jumped 5 per cent from its settlement level on Tuesday to $70 a barrel in afternoon trading in New York. US benchmark West Texas Intermediate rallied by a similar amount to its highest level since April.
The rise in crude prices came hours after Donald Trump said he was now “less confident” of a nuclear deal with Iran, despite talks between the two countries this year.
On Wednesday night the US president confirmed the withdrawal of non-essential personnel from the Middle East. “They’re being moved out because it’s a dangerous place and we’ll see what happens,” he told reporters.
“They can’t have a nuclear weapon, very simple,” the president added, referring to Iran.
The US has warned it would consider military options to prevent Tehran from securing a nuclear weapon if diplomacy fails. Israel has also pushed for strikes against Iran, believing the Islamic republic is at its most vulnerable in decades and it has an opportunity to attack.
Iran’s defence minister said on Wednesday his country would target American military assets in the region in response to any attack “without hesitation”, in comments that rattled energy markets.
“Crude has obviously reacted to the news coming out of the Middle East,” said one London-based oil broker.
A 60-day deadline Trump set for Iran to agree a new nuclear deal expires on Thursday. Tehran said this week there would be a sixth round of talks on Sunday, although that has not been confirmed by the US or Oman, which is facilitating the talks.
The voluntary departure of American military dependants from parts of the Middle East was authorised by defence secretary Pete Hegseth, according to a US defence official.
“The safety and security of our service members and their families remains our highest priority and US Central Command (Centcom) is monitoring the developing tension in the Middle East,” the official said. Centcom is responsible for military operations throughout the region.
A state department official said the US had chosen to “reduce the footprint of our Mission in Iraq”, noting that it was “constantly assessing the appropriate personnel posture at all our embassies”.
Britain’s Royal Navy Maritime Trade Operations office had said earlier on Wednesday that it “has been made aware of increased tensions within the region which could lead to an escalation of military activity having a direct impact on mariners”.
It was not clear what caused the US to authorise military dependants to voluntarily leave the region. A UK government official said it was not following the American lead for its own forces in the region, but was keeping its position under review.
Brent’s rally on Wednesday was an “overreaction that shows the market is a bit short and full of angst”, said Jorge Montepeque, managing director of Onyx Capital, an oil derivatives liquidity provider. A “short” position is a bet that oil will fall.
The Trump administration is in the middle of indirect talks with Iran in a bid to secure an agreement to curb Tehran’s expansive nuclear programme and resolve a long simmering stand-off with the Islamic republic.
Iran has reacted negatively to a US proposal for an interim agreement, as Trump pushes it to give up its domestic enrichment programme.
Tehran, which has said it would submit a counterproposal, insists that is a red line, saying it had the right to enrich uranium as a signatory to the non-proliferation treaty.
Trump told The New York Post on Wednesday that he was “less confident now of a deal being made”, although he reiterated that he would prefer a deal to military action.
Iran’s defence minister Aziz Nasirzadeh told reporters on Wednesday that “if a conflict is imposed on us . . . all US bases are within our reach and we will without hesitation target them in host countries”.
However, western diplomats say Tehran is keen to avoid military conflict and wants the negotiations to succeed so that it can secure sanctions relief to boost the beleaguered economy.
Helima Croft, a former CIA analyst who is now at RBC Capital Markets, said the departure of non-essential US personnel from the region was raising geopolitical tensions.
“While not a full evacuation order these decisions are not usually taken lightly and typically involve a significant intelligence review,” Croft said. “This raises the spectre of a heightened threat environment in the region.”
Additional reporting by Guy Chazan in New York, Najmeh Bozorgmehr in Tehran and David Sheppard in London
