Oil is on the rebound.
Crude prices spiked 1.6% early Monday after Saudi Arabia severed diplomatic ties with Iran.
The two countries have long been at odds, but Saudi Arabia’s execution of Shiite cleric Nimr al-Nimr on Saturday kicked off a new round of sparring between them that marks a dangerous shift in an already volatile region.
Al-Nimr was a fervent dissident against the Sunni Muslim Saudi royal family and called for their deposal during the Arab spring uprisings in 2011. After his execution, the Saudi embassy in predominantly Shia Tehran came under attack.
Both Iran and Saudi Arabia are major oil-producing countries, and founding members of OPEC.
Crude was trading at $37.64 on Monday. In 2015, oil prices dropped 35%, to a level not seen since the global financial crisis.
OPEC, the biggest player in the oil market, is charging ahead, refusing to cut production to lift the prices. The Saudi-led cartel is trying to squeeze out higher-cost producers in the U.S. and elsewhere.
Iran’s oil production has long been reined in by sanctions, but the country is eager to ramp up its output. It is planning to increase production by as much as 1.5 million barrels a day in 2016.
— Ivana Kottasova contributed to this report.
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