Escalating tensions between major oil producer Saudi Arabia and Iran sent oil prices sharply higher in the first trading day of 2016 on the prospect of supply disruption.
Benchmark U.S. WTI light sweet crude was up 1.9 percent at $37.76 a barrel early afternoon in Asia, after jumping as much as 3.4 percent from the last day of trade in 2015, while Brent crude was up 2.3 percent at $38.12 a barrel after spiking 2.4 percent over the same period.
The kneejerk reaction came after Saudi Arabia cut ties with Iran, after its embassy in Tehran was attacked by Iranians protesting the Saudis' execution of a prominent Shiite cleric.
Heightened tensions between the two OPEC producers troubles investors because most oil Saudi oil production comes from its Eastern Province, which is dominated by Shiites, Bernstein's senior oil and gas analyst Neil Beveridge explained.
"This is the area that could potentially suffer if there is an escalation in tensions between Saudi Arabia and Iran," he told CNBC Squawk Box on Monday.