Iraq Crisis: Why Haven't Gas Prices Spiked Yet?

Remy Merritt |

iraq oil production, how much oil does iraq produce, oil prices middle east, brent crude prices, iraq crisis oil prices,sabotaging oil production in Iraq has remained a major strategy. As of Tuesday, June 17, insurgents forced the shutdown of the Iraq’s largest oil refinery in Baiji. As they close in on the Kurdish-run provinces of northern Iraq, ISIS forces threaten the second of only three Iraqi refineries. With only two thirds of its refineries currently in operation, lowered supply has already placed strains on domestic production.

Prior to its forced closure, the Baiji refinery had a production capacity of 300,000 barrels per day. However, it is a domestic supplier, and as such, its closure does not directly threaten international crude oil prices. What it does threaten is a shortage of supply within Iraq, with indirect long-term ramifications including increased pressure on the remaining two refineries as well as potential rerouting of refined, usable oil to account for the domestic shortage.

Insurgents Surge Forward, Jump in Gas Prices Anticipated

Projections for Iraqi crude oil production are dwindling as ISIS insurgents increase their territory holdings. The International Energy Agency estimates for future Iraqi oil production are looking leaner. Maximum extraction has dropped to 4.54 million barrelsper day by 2019, far below the 2012 expectation of 9 million per day by 2020.

As export prospects shrink, futures prices for Brent crude are on the rise. At a current trading price of $113, various sources speculate that it could continue climbing to anywhere from $116 to an extreme of $150 per barrel. Last month, Brent was trading at about $108 per barrel.

Stephen Schork, editor of energy industry newsletter The Schork Report, told CNNMoney the price of gas typically rises between 2 and 2.5 cents per dollar jump in crude oil. The national average for a gallon of gasoline is about $3.65. If the barrel price of crude continues to rise, this translates to a potential jump in gas prices by anywhere between 20 and 84 cents per gallon with a delay of about two to three weeks to account for barrel trading, exporting and refining. 

China is currently the largest consumer of Iraqi oil, importing about 60% of the 3.3 million barrels produced each day. Meanwhile, the IEA expects 2014 global demand to rise by 960,000 bpd more than its previous May 2013 projections, reaching an average of 92.6 million bpd. The report shows the variety of pipelines linking Iraqi oil fields, all of which cross ISIS territory and many of which are currently offline due to the conflict.

Global Oil Demand Expected to Fall Though Oil Companies Remain Strong

Despite a 2014 increase in demand, the IEA expects a gradual slowdown in oil demand after 2015. Recurring unrest in the Middle East combined with severe environmental impacts and the rising price at the pump are placing limits on future oil dependency. The investment needed to develop Iraq’s oil capacity to reach its full potential is likely to be deterred or entirely impeded.

While prices at the pump are likely to increase within the next few weeks, Western oil corporations with holdings in Iraq oil fields remain in good health.

Over the past five days, shares in Halliburton Company (HAL) have risen 0.75%, while British Petroleum (BP) shows gains of 1.35%. All Western oil companies claim holdings on oil fields located in southern Iraq, away from the current conflict to the north.

Chevron Corp. (CVX)  is faring particularly well despite its proximity to the conflict, with shares up 2.78%. The corporation holds an 80% stake in Kurdistan’s Qara Dagh block. Production is still in the exploratory stage, but previous drilling efforts have confirmed the presence of active petroleum deposits.


DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:


Symbol Name Price Change % Volume
BP BP p.l.c. 35.95 -0.05 -0.14 1,942,680
CVX Chevron Corporation 104.20 4.28 4.28 6,487,604
HAL Halliburton Company 47.21 -0.35 -0.73 3,098,849
JPQZZ JPMorgan Chase Bank London Branch Indian Low Exerc n/a n/a n/a 0


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