LONDON: Brent crude edged further above $113 a barrel yesterday, up about $4 since the start of the week, on concerns that an insurgency in Iraq could trigger civil war and eventually hit oil exports.
Iraq’s most senior Shia cleric urged his followers to take up arms to defend themselves against the advancing Sunni militants, potentially escalating the conflict.
“The market in general is trying to assess the risks on Iraq. There was a big market reaction and then the IEA (International Energy Agency) said it did not see a risk to supplies so the volatility is reflecting this,” Olivier Jakob at Petromatrix consultancy said.
Most of Iraq’s current oil exports come from south of Baghdad, still far from the Islamist rebel fighters. Should they reach south of the capital, analysts expect them to encounter much greater resistance.
Iraqi exports from the north are considered safe for the moment, analysts said, as the major Kirkuk oil hub is held by Kurdish forces.
“While the Iraqi military faces low morale issues in the north, Shia fighters would prove much more resilient in protecting their homes and provinces in southern Iraq, and Sunni insurgents have no local support,” Ayham Kamel, director for the Middle East and North Africa at Eurasia Group, wrote in a research note earlier this week.
Brent was up seven cents at $113.09 per barrel as of 1456 GMT, off a peak of $114.69, its highest since September. It gained more than $3 on Thursday.
US crude was up 12 cents at $106.65, off a high of $107.68, also a nine-month peak. A day earlier it gained $2.13. Brent was set to gain more than five percent this week, the biggest weekly rise since last July, while US crude was on track for its biggest jump since December.
“You want to have a premium as Iraq is more unstable than last week, but with no disruptions, how much can you keep,” Jakob at Petromatrix said.
The United States has threatened military action against Islamist militants who have taken towns and cities in Iraq, raising concerns over its oil exports.
The militants, a Sunni offshoot of Al Qaeda, were moving into two towns in the eastern province of Diyala after security forces abandoned their posts. Iraqi army helicopters fired rockets on one of the largest mosques in the city of Tikrit yesterday, local officials and witnesses said.