Oil prices have surged to a nine-month high after US President Barack Obama threatened action against militants who have seized control of towns and cities in northern Iraq, raising fears that exports could be disrupted by an escalation in hostilities.
Brent crude neared $115 a barrel – a level not seen the autumn, when unrest in Egypt sparked concerns that major supply routes could be choked – before easing back towards $113.
Officials said yesterday that insurgents had taken control of two towns north-east of Baghdad, having already captured Mosul and Saddam Hussein’s home town of Tikrit, but Kurdish security forces have moved to fill the power vacuum caused by retreating Iraqi forces in the north of the country.
The conflict could play into the hands of Kurdistan, which wants to bypass the Iraqi system and sell its oil directly abroad. If the region was to declare independence from Iraq, this could also benefit explorers such as Gulf Keystone and Petroceltic.
Gulf Keystone chief executive Todd Kozel yesterday said the firm remained “alert to the current security situation in Iraq”, but operations at its Shaikan field were progressing in line with its target to raise output to 40,000 gross barrels a day.
Petroceltic, which merged with Edinburgh’s Melrose Resources in 2012, plans to drill a well this month at the Dinarta field, about 100 miles north of the northern oil city of Kirkuk.
However, analysts at Barclays pointed to disruption to a key pipeline linking Kirkuk and Turkey, which has been repeatedly bombed by insurgents. They said: “With no immediate end in sight to the violence in the north, we do not expect that pipeline to be operational on a sustained basis any time soon.”
Rebecca O’Keeffe, head of investment at Interactive Investor, said: “Although most of the country’s oil is produced in the south, there is a growing risk that the escalating tensions between Shia and Sunni could spread, which increases the threat of a spike in oil prices.”
Iraq is the second-largest producer in the Organisation of the Petroleum Exporting Countries, with output of about 3.3 million barrels a day.