If civil war engulfs all of Iraq, oil prices are likely to skyrocket. But U.S. exports could change the game
Even though the conflict in Iraq still rages, with forces from the Islamic State of Iraq and Greater Syria (ISIS) just an hour outside of Baghdad while the Syrian military is reportedly bombing the insurgents, global oil markets have mostly calmed. Prices for Brent crude on June 26 had fallen below $114 a barrel, and have dropped more than 1% since hitting a nine-month high on June 19. The violence in Iraq’s north and west—including fighting around the country’s largest refinery in Baiji—hasn’t yet seriously affected oil production in the Shiite dominated south. Iraq’s Oil Minister Abdul Kareem al-Luaibi even promised in an interview with Bloomberg that the nation’s oil exports—which have averaged more than 2.5 million barrels a day—will actually accelerate next month. “Oil exports will witness a big increase, as recent events didn’t reflect negatively on Iraq’s crude output and exports,” al-Luaibi said. “International oil companies are working normally in Iraq.”
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That doesn’t seem to be quite true, though—international oil majors like BP and ExxonMobil have already evacuated some of their foreign workers from Iraq. And if things do get worse, oil markets might not react so calmly. A recent report from the nonprofit Securing America’s Future Energy found that the loss of just a third of Iraq’s oil output could be enough to push global oil prices up as much as $40 per barrel. Even if production from Iraq stays steady, political turmoil in countries like Libya and Nigeria have helped remove some 3.5 million barrels a day of oil production capacity. That doesn’t leave much room for more trouble in Iraq, the world’s third-largest exporter of crude oil. And with Iraq projected to be the biggest single contributor to new oil production over the coming decades—at least before the ISIS insurgency revved up—what happens in the country will matter at the pumps for a very long time.