Junction Critical: If Iraq declines, Oil prices explode. $200/barrel?

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Photograph by Onur Coban/Anadolu Agency/Getty Images

Out of the 12 OPEC members, 8 have seen a decrease in oil production over the last few years.  Only Iraq has actually increased production.

Now, ISIS guerillas control 75% of Iraq’s largest oil refinery.

From Marketwatch-Citing an official at the refinery, Reuters reported Sunni militants have 75% of the biggest oil refinery in Baiji under their control in an attack that came overnight. A British security company helped get Western workers out of the refinery just ahead of it. Meanwhile, CNN reported militants have made big advances towards Baquba, which is less than 40 miles north of Baghdad.

Iraqi oil in the hands of Sunni terrorists is bad on many levels.  But here it is in a nutshell:  Only Saudi Arabia can make up the difference (they claim) if Iraqi oil is shut down.  The Saudi’s would have to produce more barrels per day than it ever has attempted.  And its equipment is aging, in some cases 50-60 years old.

Regardless, the price of oil would go the wrong direction.  And that hurts us all.

Iraq is expected to account for 60% of the output increase by the Organization of Petroleum Exporting Countries by 2019. The missing supply, said the analysts, will need to come from other countries, and in the longer term, this points to higher oil prices.

And it’s not just the U.S. that’s worried.

As the situation in Iraq worsens, China is showing increasing consternation. And while authorities have mainly issued broad statements of concern, it’s no secret what worries those in charge in Beijing: the risks the crisis could pose to its Iraqi-sourced oil supply and China’s three petro-majors, all active in the country. 

Bottom line:  If  ISIS gains control of or decides to sabotage Iraqi oil production, we will feel it in the U.S., and around the world real quick.

Stay tuned.

~~Seano

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