Iraq is burning, and now its largest refinery has quite possibly been taken over by Sunni insurgents.
On June 18, reports on the ground remained unclear as to who controls the refinery, with Iraqi security forces saying they were close to retaking full control, but other sources suggesting the refinery was surrounding by insurgents allied with anti-government tribes from the area.
By June 19, the Iraqi Oil Report was twittering that the Iraqi security forces were inside the refinery, but that the Sunni militants from the Islamic State of Iraq and the Levant (ISIS) and their loose alliance with local tribes were controlling everything around the refinery, and that production had been completely halted.
What does it mean for global markets? Well, not much—yet, at least in direct relation to the Baiji refinery. Baiji is billed as Iraq’s largest refinery, but that’s skewing the picture a bit. It is perhaps Iraq’s largest refinery in terms of square footage. But it refines products for consumption on the domestic market only—not for export.
The wider story, though, should have global markets extremely anxious, but no one should be surprised. OP Tactical has been advising its clients for years, certainly since the outbreak of conflict in Syria, that Iraq was heading towards civil war. The response has always been one of disbelief because regular Iraqis so badly wanted life to be normal and were ready for business.
But civil war is a snowball from hell that regular citizens cannot stop; rather they can only be bowled over by it and sucked into it.
The geopolitics is about to get very interesting, if it wasn’t interesting enough already. On June 17, Baghdad pleaded with the US. to come to its aid with air strikes that would likely decimate the civilian population in the vicinity of the Sunni-controlled hotspots, not to mention further ignite the conflict and give the civil war even more impetus. And, make no mistake, ISIS is heading for Baghdad. Mosul, Tikrit and the other towns it has taken over are just springboards to Baghdad, and they’re picking up stray allies in the form of local anti-government tribes along the way.
Still, Washington is surely by this point wondering whether it should come to Iraq’s aid or let Iran do it. And, of course, Saudi Arabia is not keen on have the US launch air strikes on Sunni insurgents it helped to build up for the conflict in Syria. But everyone knows that Iraqi Prime Minister Nouri al-Maliki’s Shi’ite dominated government has only a very shaky hold on power as it is, so there’s not much to stabilize on those terms.
As it stands, though, with the violent insurgency raging, Iraq will not be able to make any strategic decisions on its oil expansion plans.
On 18 June, for instance, the Iraqi Oil Ministry announced the postponement of bidding on the Nassiriya oil field and refinery project, which had been planned for June 19. Baghdad is now fully distracted and ISIS is surely coming for its oil.
Exxon Mobil Corp. and BP Plc have begun evacuating employees from the Iraq, including workers from the massive West Qurna oilfield.
On another important geopolitical front, eastern Ukraine is also still burning, but that’s not stopping Kiev from thinking very seriously about what its energy industry should look like once the dust settles.
To that end, please don’t miss our coverage of the Adam Smith Ukrainian Energy Forum, which kicks on 24 June. Oilprice.com will be on the ground bringing you full coverage of the event, including video footage and special interviews with key power brokers influencing the future of the country’s energy sector.
By James Stafford of Oilprice.com