Iraq's army is trying to fight back the Islamic State of Iraq and Syria (ISIS) that has taken over northern cities like Mosul and Tikrit, and it's a 300,000-barrel a day refinery. ISIS posted a video of them allegedly executing captured Iraqi soldiers. Iraqi officials said on Sunday that ISIS had taken control of Tal Afar in northwest Iraq. Yet crude oil (NYMEX:CLN14) has stabilized as the Iraqi government says they have turned back insurgents from Baghdad. While the oil still flows out of Iraq the gas to Ukraine and Europe does not.
Russian state gas giant Gazprom reportedly cut off the natural gas (NYMEX: NGN14) supply after demanding that Ukraine pay in advance for supply after EU-mediated talks failed. It seems the market had priced in this risk and the fact that Europe is well supplied and that it is summer is easing the upward momentum.
Yet in Iraq the problems continue to make the future of Iraqi production very murky. The Kurds now control the oil-rich city of Kirkuk after Iraqi troops abandoned their post. Reuters reports that "as Iraq struggles to stop an insurgency by Islamist militants, its autonomous region Kurdistan is ramping up independent oil exports, with a third tanker set to load a cargo of crude from its disputed pipeline. The third tanker is scheduled to depart Turkey's Mediterranean port of Ceyhan on June 22 carrying oil pumped through Kurdistan's new pipeline, which by-passes Baghdad, Turkish Energy Minister Taner Yildiz said on Monday. Iraqi Kurdistan began independent pipeline exports via Turkey in May, despite protests from Baghdad which claims it has the sole authority to sell Iraqi oil via state-marketer SOMO.
Basra in the south of Iraq seems to be operating normally. As I said before Iraq's coveted 3.5 million barrels a day of high quality oil will be missed but also we will see reduced expectations for further export growth that the market was already trying to price in. Instead of dreams of 4 million or 8 million barrels of exports in the future we have to hope that they can maintain these 3.5 million barrels of oil a day which was a 30 year high. Time Says that Iraq's production hit an average of 3.6 million barrels a day in February he highest level since Saddam seized power in 1979. And a 2012 report from the International Energy Agency (IEA) projected that Iraq could reach 8.3 million barrels a day of production by 2035. That would make Iraq by far the largest contributor to new oil growth, which in turn could help accommodate the still growing demand from developing nations like China.
While the U.S. pulls people from Baghdad and moves personal around exports of oil from continue. Guardian says that has sent 2,000 advance troops to Iraq in the past 48 hours to help tackle a jihadist insurgency, a senior Iraqi official has told the Guardian. The confirmation comes as the Iranian president, Hassan Rouhani, said Iran was ready to support Iraq from the mortal threat fast spreading through the country, while the Iraqi prime minister, Nouri al-Maliki, called on citizens to take up arms in their country's defense.
Reuter's reports that U.S. officials said it is imperative for Washington to discuss the security situation in Iraq with Iran and other regional powers in a bid to better coordinate a response against ISIS. Secretary of State John Kerry communicated Washington's strategy to his Iraqi counterpart, Hoshyar Zebari, in a phone call on Saturday, according to the State Department. Iranian President Hasan Rouhani said on Saturday that his government was open to cooperating with the U.S. in Iraq and that he exchanged letters with President Obama.