The jihadist blitz of Iraq should quash whatever misapprehension remains that production growth in North America greatly lowers the importance of the Persian Gulf to oil markets.
Unsurprisingly, the price of crude oil jumped when fierce combatants of the Islamic State of Iraq and al-Sham (ISIS) stormed into northwestern Iraq, conquering Mosul and routing thousands of members of the Iraqi army and even more of their country folk.
At this writing, Baghdad was in jeopardy. President Barack Obama had declared the US unwilling to recommit ground troops to the country. Iranian forces, already active in Iraq, were rallying to defend the Shia-dominated government of Iraqi Prime Minister Nouri al-Maliki and Shia areas south of Baghdad.
In the north, the Kurdistan Regional Government had marshaled Kurdish Peshmerga fighters to defend borders and to occupy Kirkuk.
The Sunni ISIS, which broke off from the terrorist group Al Qaeda last year in Syria, was believed to want to create an autonomous region along the Iraqi-Syrian border.
A partition of Iraq, with one piece dominated by Iran and another able to press terrorism in any direction, was a distressing possibility.
Iraqi production survived the initial attack. The International Energy Agency reported that Iraq had exported no oil from northern fields jeopardized by the ISIS attack since early March. Thanks to rising exports from southern terminals, the country’s production was able to increase in April and May, reaching 3.37 million b/d in the latter month.
How long that continues depends on how far south ISIS takes its assault.
Iraqi supply definitely is in jeopardy. With Libyan output again slashed by instability, market attention must focus anew on the spare production capacity of Saudi Arabia, estimated by IEA at 2.65 million b/d.
In Iraq, Saudi rulers see surging Iranian influence, a new haven for Islamist militancy, and yet another sign of disengagement by the former defender of regional stability.
Besides war, nothing is more important to the oil market now than Saudi decisions about oil production.
(From the subscription area of www.ogj.com, posted June 13, 2014; author’s e-mail: [email protected])