Questions and Answers About Iraq and Global Oil Markets
Q: How is the recent escalation of violence in Iraq impacting global oil markets?
A: Last week’s attack on and seizure of Mosul (Iraq’s second largest city) by armed groups affiliated with the Islamic State of Iraq and the Levant (ISIL), an extreme jihadist group, represents a major expansion of the group’s previously held control of areas near the Syria/Iraqi border and escalated security concerns within Iraq.
Unable to stem the tide of the incursion thus far, the Maliki government asked Parliament to declare a state of emergency and requested assistance from the US military as well. The US Embassy is already evacuating certain employees and sending in additional troops to bolster security at the Embassy, recent press reports indicate that several energy companies operating in southern Iraq have done the same, and indications are that the ISIL forces have recently take over a major refinery in Baiji, a town north of Baghdad (though the refinery provides products to the domestic market).
The deteriorating security situation in Iraq and the prospect of an even broader humanitarian and regional political crisis is at the forefront of an already tense geopolitical landscape this week with Russia cutting natural gas supplies to Ukraine and ongoing territorial posturing between China and Japan in Asia. Given the complexity of the ethnic, national, and regional disputes and alliances within in the Middle East, however, the current situation in Iraq has clear potential to follow a rapid and dangerous trajectory.