Oil price surges as chaos in Iraq raises fears for supplies
Iraq is the second-largest exporter in oil cartel Opec so any break in supply is likely to have a big impact on prices
Iraq’s descent into chaos sent the oil price surging to a nine-month high yesterday as the threat of disrupted supplies panicked markets.
Brent crude soared to $114.69 a barrel – its highest price since last September – amid the prospect of more turmoil in the region with Sunni Islamist militants closing in on Baghdad and the US threatening military intervention.
But the gains were later pared back after the Paris- based International Energy Agency (IEA) said it did not see a short-term risk to supplies.
“Concerning as the latest events in Iraq may be, they might not for now, if the conflict does not spread further, put additional Iraqi oil supplies immediately at risk,” the agency said.
That took some of the heat out of the markets but traders remain skittish amid the escalating crisis in the country.
To the north, Kurdish forces have taken control of the oil hub of Kirkuk as Iraq faces the real prospect of breaking apart.
Further south, the main oil-exporting region is below Baghdad, where the Sunni Islamists are expected to face far stouter resistance than they have encountered up until now from the local Shia and where they have little local support.
However, the latest rise put Brent crude on course for a 5 per cent rise this week – its biggest weekly increase for almost a year.
Iraq is the second-largest exporter in the Opec oil cartel so any disruption to supply could have a big impact on prices at a time of escalating global demand.
Eventually that will hit home in the UK, with businesses facing higher costs and households seeing increases in the price paid at the petrol pump. That will lead to higher inflation, potentially hastening an interest rate rise.
“Given the fragile state of the global economic recovery, sharply rising oil prices are the last thing the global economy needs,” Michael Hewson, at CMC Markets, said.
“Prospects of a civil war in Iraq will keep oil prices uncomfortably high, although for the moment these tensions have been confined to the north of the country,” said the spread-betting firm ETX Capital. Ken Hasegawa of the broker Newedge Japan added: “There have been no disruptions to oil supplies so far, but people are very nervous.”
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