Experts Analyze Impact of ISIS Advances on Iraq’s Oil Industry
Oil industry analysts said the attack by militants on Iraq’s main Baiji refinery shows the growing impact they are having on the country’s stability, energy supplies, and government revenues.
The pre-dawn assault on the Baiji refinery north of Baghdad by fighters from the Islamic State of Iraq and Syria (ISIS) poses new questions about the security of the oil industry in Iraq, OPEC’s second biggest crude producer.
Q: How are oil prices affected by the violence in Iraq?
Even though the fighting has not yet reached the southern oilfields, which account for 90% of Iraq’s oil production, oil prices rose last week to their highest level for 9 weeks (USD 114.69/bbl for Brent crude) and investors are worried about the long-term prospects for Iraqi oil.
Price rises have calmed since then as Iraq’s oil production has not been significantly disrupted, but climbed back towards USD 114/bbl on 18 June following the refinery attack.
Analysts agree that if Iraq’s oil exports were suspended—it exports 2.5 million B/D—they would be hard to replace on international markets.
If “all of Iraq’s production is lost for a sustained period, the impact on oil prices would be significant,” Morgan Stanley said in an analysts’ note. “OPEC’s effective spare capacity … may be able to replace some of this volume, but at a substantial cost.”
The Paris-based International Energy Agency estimates OPEC has 3.3 million B.D in spare capacity, with 80% of that in Saudi Arabia.
Crude oil sales account for 75% of Iraq’s GDP, according to the International Monetary Fund.