19 June 2014, 15:51

Terrorist organization ISIS becoming major player in oil market

Terrorist organization ISIS becoming major player in oil market

Iraq can produce around 3 million barrels of oil per day. By any measure this is a lot of oil, placing the country in the premier league of oil producers. However, the situation in Iraq is likely to evolve in such a way that this production potential will be fully controlled by the infamous Islamic State in Iraq and the Levant (ISIS).

Yesterday, ISIS artillery began shelling the biggest oil refinery in Iraq, near the city of Baiji, 155 miles north of Baghdad. Refinery's foreign workers have been evacuated recently and it has fully stopped its operations. Most likely, the refinery will soon fall in the jihadists' hands. During the last week, ISIS forces managed to gain a lot of ground, overwhelming the anemic resistance of Iraqi army. BBC reports that Baghdad's residents are stocking water and food supplies, preparing for a siege and the unavoidable food shortages.

What happens if Sunni jihadists manage to disrupt the country's oil production or even terminally cripple its oil-related infrastructure? Why would Sunni radicals destroy the sole profit-generating asset of Iraq?

One of the probable reasons behind this deliberate strategy of oil-related asset destruction may be linked to the alleged sponsors of ISIS. The prime minister of Iraq and the president of Iran have accused Saudi Arabia of financing, arming and supporting Sunni jihadists in Iraq. Given that ISIS is run like a for-profit corporation (it even publishes a glossy annual report for its financial donors) it is safe to assume that its actions have to bring some material benefits for the Saudi Arabia rulers, if the links between Riyadh and ISIS really exist. In this context, the actions of Sunni jihadists in Iraq make perfect sense. Destroying Iraq's infrastructure, sabotaging pipelines, shelling oil refineries and chasing the foreign oil companies away from the country's oil fields will make 3 million barrels of oil per day disappear from the global market, radically increasing the price of oil. ISIS' budget is unlikely to be bigger than several billion dollars, while it has the potential to bring tens of billions of dollars of additional profits for Saudi Arabia. From a pragmatic point of view, if allegations of Saudi involvement in Iraq's civil war are true, it can be said that Saudis have made the perfect investment: low risk and huge reward. Can the US counteract this strategy? Today, it seems highly unlikely that Obama has the power and the resources for such a gargantuan task.

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