June 14:
LONDON: The sudden eruption of an Al Qaeda-linked militant insurgency in northern Iraq this week has triggered the biggest oil price rise in almost a year, as traders feared a civil war that might also draw in oil-rich neighbours.
Despite a near $5 a barrel rise in Brent crude, analysts and consultants say the immediate threat to Iraq's oil supplies - most of which is hundreds of miles to the south of the fighting - is limited. Northern exports have run at a trickle for months, and few had expected a rapid recovery.
While it is too early to say what impact the violence will have on long-term investment in a country expected to deliver a large portion of the world's future oil supply growth, near-term risks are more contained. Brent crude rallied to a nine-month high of nearly $115 a barrel on Friday, but later pared gains to trade around $113.35.
Southern Iraq is overwhelmingly Shia and loyal to the government in Baghdad of Iraqi Prime Minister Nuri Al Maliki, who will fiercely defend their neighbourhoods and the key oil producing and exporting facilities, say analysts.
Despite the Sunni Islamic insurgency seeking to topple Maliki, production is set to rise to a record 2.8 million barrels per day (bpd) by the end of this year, said Ayham Kamel, Middle East and North Africa director for consultancy Eurasia.
Iraq exported 3.17m bpd of crude oil in May, of which around 2.6m bpd came from its southern oilfields. Most of the rest of the oil was exported either from the autonomous area of Iraqi Kurdistan or via trucks and other smaller routes to neighbouring countries.
"Concerning as the latest events in Iraq may be, they might not for now put additional Iraqi oil supplies immediately at risk," the International Energy Agency said in a report.
The most material focus for markets is the 300,000 bpd Baiji refinery, Iraq's largest, which was surrounded by ISIL fighters on Thursday. It was not clear what impact this was having on the flow of fuel, but a prolonged outage could force Baghdad to import more petrol or diesel from the south.
The outbreak has added to doubts over boosting Iraqi crude exports through the country's northern oil pipeline from the Kirkuk area.
That pipeline, which had pumped some 250,000 bpd in the second half of last year, passes through areas now controlled by forces loyal to the militants from the ISIL.
"Oil and gas infrastructure in ISIL-controlled areas will be vulnerable to repeated attacks, and the risk of disruptions to domestic product supply is high," said Raad Alkadiri, a former UK government adviser in Iraq.
Source: http://www.gulf-daily-news.com/NewsDetails.aspx?storyid=379162
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