World oil prices have soared dramatically in the past few weeks as insurgents of Islamic State of Iraq and the Levant (ISIL) continued to make gains in their quest to ‘islamise’ the country.
Brent crude reached $115.71 last Thursday before falling by 27 cents to $114.79 a barrel early this week.
This is the highest rise since September 2013, and the dramatic change has got industry watchers worried and sent world markets panicking, as the ‘convalescent’ global economy was once again on the brink of hitting the brakes.
Paul Horsnell, head of commodities research at Standard Chartered bank, was quoted as saying that the market has priced in existing geopolitical risk.
ISIL fighters have been capturing towns and cities around Iraq, and were seen advancing triumphantly towards the capital Baghdad. And in the process they have surrounded Baiji, Iraq’s biggest oil refinery, prompting fierce battles with the country’s ailing and demoralised regular army.
While oilfields south of Baghdad, which export at least 2.5 million barrels per day of oil, are still unaffected, the BBC reported however that the fighting in the north posed a risk to supplies as foreign oil companies are beginning to pull out staff.
Global spare capacity in oil production is at about 2%, meaning that a spike in demand of more than 2 per cent will outstrip production, Horsnell was quoted as saying.
Iraq is the world’s fourth-largest oil producer and the country has the world’s fifth-largest proven oil reserves, with 140 billion barrels.
Bearing in mind that the Iraqi oil is vital for the survival of world markets, analysts said the global economy could not afford to suffer another misfortune, and wished that the international community could intervene to help Iraqi solve its problems as fast as possible.
While UN secretary general Ban Ki-moon is said to be ‘very worried’ about the Iraqi situation, the US is preparing to send more than 300 military ‘advisers’ to Iraq and order air strikes to quell the Islamists’ advance towards Baghdad.
Photo: Huge smoke rises from Iraq’s Baiji oil refinery as rebels and army battle for the control of the oil facility. Credit: EPA/Daily Mail