Oil surges after US killing of top Iranian general fuels war fears

World oil prices soared on Friday after the US killed a top Iranian general, fanning fresh fears of a conflict in the crude-rich Middle East, with Tehran warning of retaliation.

The head of Iran's Quds Force, Qasem Soleimani, was hit in an attack on Baghdad's international airport early Friday.

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

Brent oil surged by 4.5 per cent in the London morning and WTI jumped 4.1 per cent as traders fretted over the dramatic escalation in tensions, but then prices eased back a little in the afternoon.

Iran's supreme leader Ayatollah Ali Khamenei has warned of "severe revenge" for "the criminals who bloodied their foul hands with his blood", while the country's foreign minister called the move a "dangerous escalation".

Cailin Birch, global economist at The Economist Intelligence Unit, said the market feared a "broader conflict".

"The importance stems less from the potential loss of Iranian oil supplies ... and more from the risk that this could spark a broader conflict that draws in Iraq, Saudi Arabia and others," she told AFP.

"There is also a significant risk that Iran could launch a targeted attack on US ships in the region, which could disrupt seaborne crude oil flows and cause prices to rise further."
"While this strike is the most significant escalation of US-Iran tensions that we've seen yet, we still do not expect the US and Iran to enter into a full-fledged war that would impact oil production and disrupt regional supply chains."