14 June 2014, 02:52

Violence in Iraq rattles the global oil market

Violence in Iraq rattles the global oil market

Even before the American invasion of Iraq, it was abundantly clear that the reason for the US military action had nothing to do with weapons of mass destruction. Iraq was and still is one of the biggest oil producing countries on the planet and the control of its oil is an important geopolitical asset. It seems that Washington is very close to losing this asset because of the chaos created by Washington itself.

The Sunni jihadists of Islamic State of Iraq and the Levant (ISIS or ISIL) have taken over three cities and are trying to take over the largest Iraqi refinery located in the northern city of Baiji. For the global oil market this is dire news because the jihadists can knock Iraq out of the market, depriving it over 3 million barrels of oil per day. The idea that OPEC or some non-OPEC oil producer may be able to replace Iraq is preposterous. OPEC has recently decided to hold its production levels steady and its extraction capacities are already stretched. Only Iran may be able to replace a part of Iraqi production but the political concessions demanded by Teheran will be unacceptable for Washington.
The market reaction was quick. At pixel time, WTI oil futures for July delivery are at 106.74 dollars per barrel, while Brent oil futures for July delivery are at 113.36 dollars per barrel. The crisis is unlikely to end soon and supply problems will get worse, pushing the price higher.
An unexpected beneficiary of this crisis is Moscow because Russia derives most of its profits from selling oil and not natural gas so, if oil prices keep going higher, the Russian government will be able to turn off its gas supplies to Europe without experiencing a drop in budgetary income. The European Commission whose efforts have been directed in supporting Ukraine in its "gas wars" against Russia should be very concerned about this development.

  •  
    and share via