)
After a long history of wars and sanctions, Iraq re-emerged as a critical source of oil in recent years. Mounting Iraqi production helped to ease world oil prices despite the tightening restrictions on Iran and tanking exports from Libya. And Western and Chinese oil companies rushed back, revitalising long-neglected oil fields in the north and south.
Now suddenly all that progress has been put in jeopardy with the intense military offensive by extremist insurgents.
The stakes for the oil markets are high as the Iraqi government tries to gain control over the situation. An eventual decline in Iraqi exports would put pressure on China and India to increase their imports of Iranian oil again, weakening the US government's position in negotiations with Tehran over nuclear policies. Russian oil exports would become more crucial for global markets, potentially strengthening the Kremlin's hand in Ukraine. And a major spike in global oil prices could help unfriendly regimes like Venezuela.
"The collapse of Iraq would bring an international oil crisis," said Dragan Vuckovic, president of Mediterranean International, an oil service company that supplies state oil companies in Iraq. "It would mean crude oil would go up to $150 a barrel. It could spread unrest to Saudi Arabia and Kuwait."
So far, the oil markets are taking the growing unrest in stride. American drivers are likely to see gasoline prices go up 5 to 10 cents a gallon in the coming days because of the Iraqi violence. But oil prices have been rising modestly compared with what would be expected from a major crisis in West Asia.
At $113 a barrel, global prices remain well below levels that could significantly slow the world economy.
The stock markets, too, have been relatively calm. And while the yields are rising on Iraqi bonds, they are still below the average over the last year.
The relatively muted response reflects the supply situation. No Iraqi oil production or export installations have been damaged yet and the unrest may strengthen the hands of Kurdish political leaders in northern Iraq who would like to have a free hand in exporting oil from their province without Baghdad's interference. And growing oil production in the US and Canada has helped cut American oil imports, helping to keep global supplies hardy.
©2014 The New York Times News Service
