Two very big stories this week require that I address both briefly. First, Iraq.
While it is incredibly disheartening to see Mosul fall so quickly to a very small, very extreme group of Islamic militants, especially considering the tragic loss of life, limb and resources this country expended in the last 10 years, it is also likely to have little immediate effect on the oil markets.
Yes, there will be the standard rally of crude prices based on the risks of reduced production going forward, as we have seen in Egypt, Syria and Libyan squabbles, but there is rather little risk of much reduced production in the near term. Let’s examine:
The group calling themselves the Iraq/Syria Islamic state (ISIS) is an extreme Sunni group of insurgents with little popular Iraqi support. The cities that they have so spectacularly claimed are in diverse areas of religious populations and it implies that the success that they have gained could only occur in those deeply divided regions like Mosul and Tikrit.
The vast majority of Iraq’s 3.5 million barrel a day oil production lies in the South and extreme Shiite majority, while only 17% of production remains in the north, with by far the largest center being the Kirkuk ‘superfield’ nearer the border to Turkey – that 600,000 barrel a day field is located in an area of superior Kurdish majorities. Both areas are highly unlikely to suffer a similar fate as…