While Iraqi crude represents about 4.4% of world production, or around 3.4 mmbd (5th largest in the world);
[10]
enabling investors to shrug at any fears that ISIS will spread to the South and interrupt this supply (since it will be 'contained'); what many do not comprehend is that in such a tight oil market as we currently have, Goldman warns that as much as 60% of OPEC’s expected capacity growth over the next five years to come from Iraq.
[11]
Production losses so far have been fairly small, and have only been felt domestically. However, the larger impact of the conflict potentially lies in the medium to long term.
[12]
Goldman explains the long-term implications for Iraq’s oil potential
Production losses so far have been fairly small, and have only been felt domestically. However, the larger impact of the conflict potentially lies in the medium to long term.
The uncertainty surrounding Iraq’s future will undoubtedly disrupt foreign investment and inevitably delay economic development until 1) the situation stabilizes, 2) security is guaranteed, and 3) the political landscape is defined and perceived as serious and sustainable. In the meantime, international companies (upstream, downstream, petrochemicals, etc.) will likely refrain from participating in new projects, even in the south. Trade partnerships will also be tested.
The recent insecurity has already prompted Iraq’s largest customers, India and China, to preemptively look for supply alternatives. Longer term, the instability and political deadlock introduce the risk that production growth from Iraq remains short of ambitious targets.
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As we noted previously... [13] Harvard's Meghan O'Sullivan concludes...
First, the US needs to view Iraq and Syria as completely interwoven – perhaps two countries, but one theater in reality. It needs to view IS for what it is, a threat to US and regional interests, not just as a threat to the Iraqi government. This would suggest more military involvement to push back against IS. Both in Iraq and Syria, the crisis is ultimately a political one, not a military one, so changing the politics is also key. But the US should not think that it can sequence military help only to follow political reform – the two must come together given the urgency of the situation.
While the United States continues to deliberate about its next moves, others – Syria, Iran, Russia – have been filling the vacuum in ways that are not aligned with US interests. Along with political pressure, more US military assistance to Baghdad and even to the Kurds will give the US political leverage when it comes time to help the Iraqis renegotiate their political compact. The moment in which the US can make a difference and truly affect the outcome is narrowing dramatically every day.
