Jun 13, 2014

The Islamic State of Iraq and al-Sham (ISIS) has seized Mosul. Why is Mosul important? Because it produces about 200,000 barrels of oil per day. The Baiji refinery in the region has a capacity of processing 310,000 barrels per day. Hence, Mosul is an oil city.

Accordingly, ISIS’ capture of Mosul affects energy supply security, pushing global oil prices up. ISIS attacks in recent months had already badly damaged the oil pipeline from Kirkuk to the Turkish terminal of Yumurtalik, halting the oil flow. The attacks have also been responsible for the fast rise in oil prices since the beginning of the year, for they have concentrated in areas close to Iraq’s Kurdish region and Turkey, thus affecting the overall energy supply security of Iraq, the world’s second largest oil producer after Saudi Arabia. Hence, ISIS attacks have an instant impact on global oil prices.

Why do we make this analysis? Because the price of American crude oil, known as WTI, which stood at $93 per barrel at the start of the year, jumped to $104 yesterday [June 11], while the Brent crude oil price, at $106 per barrel at the start of the year, went up to $110. In sum, the blow that ISIS dealt to Iraq’s energy supply security has resulted in an 11% increase in WTI prices and a 3.7% increase in Brent prices at a time when oil prices were expected to decline this year.

One may wonder who benefits from ISIS attacks driving up the oil prices. Naturally, the higher prices play mostly into the hands of international oil companies as well as Russia and Iran, which have been irked by Iraq’s increase of production this year. In February, the Iraqi output reached a staggering 3.6 million barrels, breaking a 30-year-old record.

In short, while some emerge as winners from this affair, Turkey is among the losers. Why?