Iraq is home to the fifth largest oil deposits in the world and currently produces about 4 percent of global oil supply. So far, the ISIS conflict has yet to disrupt the big oil-producing areas in northeast and southeast Iraq. While the initial outbreak of fighting spooked oil markets, the ongoing effect today appears to be fairly minimal.
As Brad Plumer points out, the Brent crude oil price — a good metric for global prices — hit the highest levels they had seen since September 2013 in June 2014, when ISIS took Mosul and the current crisis really took off. But since then, the price has regularly declined, indicating a distinct ebb in ISIS panic.
The original spike happened because, as Plumer explains, the fighting had affected one major pipeline, and the market was concerned it could spread elsewhere:
But the fighting has threatened some of Iraq’s other oil infrastructure, including a pipeline that can deliver 600,000 barrels of oil per day from Kirkuk to the Turkish port city of Ceyhan. (That pipeline had been damaged by a 2013 attack and was offline receiving repairs — that work has now been halted.)
There’s also potential for things to get a lot worse. If the conflict spreads further into the Kurdish regions, that could disrupt operations in the large Kirkuk oil field near the city of Mosul, which now produces around 260,000 barrels of oil per day — and accounts for one-sixth of the country’s proven reserves. Iraq had plans to invest heavily in that oil field in the years ahead, and that’s a lot harder now.
Interestingly, the fighting did spread to Kurdistan in August 2014, but oil markets didn’t panic, suggesting that they never really believed ISIS would threaten the major oil-producing parts of the region. That appears to have been correct: ISIS is being pushed back in Iraq, and so probably won’t threaten major oil-producing areas of the country. As such, oil prices aren’t being dramatically affected by the conflict between Iraq’s government and ISIS.