Why the uprising in Iraq could cause oil prices to spike (Part 2 of 7)

(Continued from Part 1)

What is ISIS?

The unrecognized Islamic State in Iraq and Al-Sham (or ISIS), also known as Islamic State of Iraq and the Levant (or ISIL)—Al-Sham being translated from Arabic as “the Levant”—is the world’s most dedicated and obsessive radical organization. It was formed out of al-Qaeda in Iraq in April 2013.

ISIS is an unrecognized state and active jihadist militant group in Iraq and Syria. In its self-proclaimed status as a sovereign state, it claims the territory of Iraq and Syria, with implied future claims over more of the Levant region, including Jordan, Israel, Palestinian territories, Lebanon, and part of southern Turkey.

ISIS’s territory

Currently, ISIS’s stronghold extends more than 500 kilometers—a fair amount of territory in both Iraq and Syria, roughly the size of Belgium. It dominates the regions from Raqqa in northern Syria all the way down to the outskirts of Baghdad. Interestingly, it overlaps a lot of oil fields.

What sustains ISIS?

Perhaps the single most important factor in ISIS’s recent resurgence is the conflict between Iraqi Shias and Iraqi Sunnis. ISIS fighters themselves are Sunni, and the tension between the two groups is a powerful recruiting tool for ISIS.

The difference between the two largest Muslim groups originated with a controversy over who got to take power after the Prophet Muhammed’s death. But Iraq’s sectarian problems aren’t about reiterating seventh century disputes. They’re about modern political power and grievances.

So long as Shias control the government and Sunnis don’t feel fairly represented, ISIS has an audience for its radical Sunni message. That’s why ISIS is gaining in the heavily Sunni northwest.

Read on to learn more about ISIS and its goals and about how ETFs like the SPDR Energy Select Sector ETF (XLE), the Vanguard Energy Index Fund (VDE), and the iShares Dow Jones US Energy Sector Index Fund (IYE)—which are heavily invested in companies like Exxon Mobil (XOM) and Chevron (CVX)—stand to gain or lose in the event of an oil price hike in Iraq.

Continue to Part 3

Browse this series on Market Realist: