• 3 minutes e-car sales collapse
  • 6 minutes America Is Exceptional in Its Political Divide
  • 11 minutes Perovskites, a ‘dirt cheap’ alternative to silicon, just got a lot more efficient
  • 3 hours How Far Have We Really Gotten With Alternative Energy
  • 1 hour Bad news for e-cars keeps coming
  • 11 days What fool thought this was a good idea...
  • 9 days A question...
  • 14 days Why does this keep coming up? (The Renewable Energy Land Rush Could Threaten Food Security)
  • 14 days They pay YOU to TAKE Natural Gas
Nick Cunningham

Nick Cunningham

Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. 

More Info

Premium Content

Sudden Eruption Of Violence In Iraq Threatens Oil Supply

Iraq protests

Oil prices have fallen sharply over the past week, as the swift return of disrupted Saudi oil production allowed markets to look past geopolitical risk. But that doesn’t mean that supply risks have gone away.

Saudi Arabia says that production at the Abqaiq facility has returned to pre-attack levels, and the impressive turnaround allowed oil prices to sink.

But the sudden eruption of protests in Iraq, and the ensuing crackdown, has raised the prospect of further instability in a key oil-producing country in the Middle East.

Over the last three days, at least 20 people have been killed in Iraq by security forces, while more than 1,000 have been injured. Protests have rocked Baghdad, as well as many other cities. The internet is down in much of the country, according to Al-Jazeera and AFP News.

The problem for the government is that these are longstanding grievances, and they run deep, which means there are no easy one-off solutions to the problem. Chronic unemployment, especially for the country’s fast-growing youth population, has only grown worse. So too has corruption. Oil production has climbed significantly in recent years, but public services remain woeful.

“No government can create jobs overnight, but what they need to do is create a credible vision – a path towards a slow prosperity that people can believe in. Tough policing and soft speeches won’t do the trick,” a European diplomat told The Guardian.

On Thursday, Iraqi Prime Minister Adel Abdul Mahdi declared a curfew. Protestors are calling for his ouster. As the FT notes, the protestors have used a chant that harkens back to the 2011 Arab Spring – “the people want the fall of the regime.”

There is no sign that Iraq’s massive oil operations in the south in and around Basra have been affected. But residents of the city have been demanding change for a long time. “We are not looking for a fight, we are just asking for our legitimate rights,” one protestor in Basra told NPR in September 2018, at which point Basra had been rocked by months of protests. “We don't have water, we don't have electricity, we don't have anything. Aren't we Iraqi? Aren't we people of oil?” Related: Oil Sands CEO Slams Government For Lack Of Leadership In Climate Debate

The Iraqi government has been caught flat-footed and there is little evidence that the Prime Minister has a plan to address the concerns of millions of people. Instead, the response has been a crackdown, which risks further instability. Shia leader Muqtada al-Sadr called for “a general strike,” which may mean that the protests only grow from here.

The oil market has not digested this risk yet, perhaps because the southern oil fields have a pretty reliable track record. But the risk of an outage is not zero. And as the Abqaiq attack highlights, even the unthinkable is possible.

Iraq is OPEC’s second-largest producer and a source of significant production gains over the past few years. In September, Iraq lowered exports in an effort to comply with the OPEC+ production cuts after exceeding its target on and off earlier this year.

Meanwhile, geopolitical risk to oil continues elsewhere. The civil war in Libya has not gone away, even as it has receded from the headlines. Oil production has held up, but remains at risk the longer the war rages on.

Moreover, even though Saudi Aramco impressed with its rapid repairs at the Abqaiq processing plant and the Khurais oil field, the threat of further attacks remains. For the time being, the Saudi leadership and the U.S. government seem inclined to try diplomacy with Iran, so the short-term risk has abated. But the feud shows no signs of nearing a lasting resolution.

“Until a clear military or political solution takes shape Saudi Arabia will continue to face a highly complex security landscape where progress will be measured not in weeks or months, but years,” Torbjorn Soltvedt, principal MENA analyst at Verisk Maplecroft, wrote in a recent report. “Unless Saudi Arabia can find a solution to diffuse regional tensions, or deter hostility from regional state and non-state actors, its energy infrastructure and tankers will remain vulnerable to attack.” Related: Higher Oil Exports Insufficient To Cut Brimming Venezuelan Stocks

Soltvedt notes that critical oil infrastructure in eastern Saudi Arabia faces military threats from the Houthis to the south, Shia militias in Iraq to the north, and from Iran to the northeast across the Persian Gulf.

Notably, the Saudi war in Yemen has made the threats much worse. “It is also clear that by most measures the Saudi-led military ‘solution’ in Yemen has failed,” Soltvedt of Verisk Maplecroft said. “From a national security point of view, the threat has only increased; Houthi rebels are far better equipped now than before the Saudi-led intervention in March 2015.”


However, with that said, Soltvedt argues that Riyadh has been “left in a limbo.” The Trump administration simultaneously has shown no appetite for a war with Iran but also has not let up on its maximum pressure campaign. That leaves little room for an exit from the conflict, and if diplomacy and de-escalation fails, Saudi Arabia is exposed to more attacks.  

For now, oil traders are uninterested in geopolitical risk. Oil prices are at two-month lows as the global economy seems to be taking a turn for the worse. But supply risks have not gone away.

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:

Download The Free Oilprice App Today

Back to homepage

Leave a comment
  • Phil Mirzoev on October 04 2019 said:
    Quote "For the time being, the Saudi leadership and the U.S. government seem inclined to try diplomacy with Iran": of course they are inclined to try diplomacy when they don't have any other choice.

    The US, just like in Venezuela (and in a way in Yemen) decided to try to organize mass starvation in Iran (which is not morally different in the degree of its criminal anti-humanity from using an weapons of mass destruction insofar as the expected consequences of the same genocidal scale of quantity of people and their suffering go) with the so-called "sanctions" which are basically using the existing financial and trading infrastructure for a total blockade of trade and existentially vital supplies.

    This "unfortunately" for the ever-so-human-loving US state didn't work, because of China support, and partially that of Russia and Turkey.
    Later it transpired that, by the looks of it, Iran is able to impose their own "sanctions" in the form of disrupting the oil supply from the Middle East to such a degree as to make economic pain intolerable for the US (let alone their beloved Saudi regime - one of the ugliest regimes on earth matched only by North Korea in terms of democracy and human rights, and even that is arguable..). Indeed, neither Trump nor his honorable opponents nor the US elites in general would like to see oil at 300 $/bbl..

    It also transpired that, apparently, the US doesn't have sufficient military capability to preemptively destroy Iranian military capabilities so fast as to make it impossible for Iran to turn 30% of world oil supply into a fireball and sustain that. This is probably because Iran got S300 anti-aircraft system in 2016 from Russia which is able to counteract jets effectively enough to make a "quick and safe victorious attack" from the air impossible (and, sure, nobody is happy about weaponaziation of Iran, but that's exactly the result of the US policy that created an existential threat not just for Iran state but for millions of Iranian people, including children because of starvation as result of severed or ruined infrastructure - Yemen scenario)

    So now, when the attempt to put millions of people in Iran on the brink of starvation seems to be failing, and, on the other hand, the prospect of getting oil prices in the range of hundreds dollars per barrel is looming largely on the horizon, the US is turning into "a kind civilized diplomat". How touching that is!

Leave a comment

EXXON Mobil -0.35
Open57.81 Trading Vol.6.96M Previous Vol.241.7B
BUY 57.15
Sell 57.00
Oilprice - The No. 1 Source for Oil & Energy News