NEW YORK/LONDON, June 13 The sudden eruption of
an al Qaeda-linked militant insurgency in northern Iraq this
week triggered the biggest oil price spike in almost a year, as
traders feared a civil war that might also draw in oil-rich
Yet for the moment, despite a near $5 a barrel rise in Brent
crude, analysts and consultants say the immediate threat to
Iraq's oil supplies - most of which is hundreds of miles to the
south of the fighting - is limited. Northern exports have run at
a trickle for months, and few had expected a rapid recovery.
While it is too early to say what impact the violence will
have on long-term investment in a country expected to deliver a
large portion of the world's future oil supply growth, near-term
risks are more contained. Brent crude rallied to a
nine-month high of nearly $115 a barrel on Friday, but later
pared gains to trade around $113.35.
Southern Iraq is overwhelmingly Shia and loyal to the
government in Baghdad of Iraqi Prime Minister Nuri al-Maliki,
who will fiercely defend their neighborhoods and the key oil
producing and exporting facilities, say analysts.
"The ISIL and its operations have not yet extended and
probably will not intrude on the vast Shia-dominated area south
of Baghdad," says Wayne White, scholar at Middle East Institute,
Washington DC said.
Despite the Sunni Islamic insurgency seeking to topple
Maliki, production is set to rise to a record 2.8 million
barrels per day by the end of this year, said Ayham Kamel,
Middle East and North Africa director for consultancy Eurasia.
Iraq exported 3.17 million bpd of crude oil in May, Reuters
data show, of which around 2.6 million bpd came from its
southern oilfields. Most of the rest of the oil was exported
either from the autonomous area of Iraqi Kurdistan or via trucks
and other smaller routes to neighboring countries.
"Concerning as the latest events in Iraq may be, they might
not for now, if the conflict does not spread further, put
additional Iraqi oil supplies immediately at risk," the
International Energy Agency said in a report on Friday.
On Friday, Iraq's most senior Shi'ite Muslim cleric urged
followers to take up arms against a lightning advance by
militants from the radical Islamic State of Iraq and the Levant
(ISIL), whose fighters were sweeping south toward Baghdad.
The most material focus for markets is the 300,000 bpd Baiji
refinery, Iraq's largest, which was surrounded by ISIL fighters
on Thursday. It was not clear what impact, if any, this was
having on the flow of fuel, but a prolonged outage could force
Baghdad to import more gasoline or diesel from the south.
The outbreak has added to doubts over eventually boosting
Iraqi crude exports through the country's northern oil pipeline
from the Kirkuk area through Turkey to the Mediterranean, which
has been shut since March due to sabotage.
That pipeline, which had pumped some 250,000 bpd in the
second half of last year, passes through areas now controlled by
forces loyal to the militants from the radical Sunni Islamic
State of Iraq and the Levant. But few analysts had been counting
on its return to operation any time soon.
"Oil and gas infrastructure in ISIL-controlled areas -
including the northern crude export route and its downstream
assets - will be vulnerable to repeated attack, and the risk of
disruptions to domestic product supply is high," said Raad
Alkadiri, a former UK government adviser in Iraq and now senior
director of upstream research at IHS Energy.
(Reporting by Anna Louise Sussman in New York and Jacob
Gronholt Pedersen in Singapore, writing by Christopher Johnson
in London and Jonathan Leff; Editing by Bernadette Baum)