Escalating violence in Iraq is starting to impact on the price of oil as rival groups battle to control the country’s oil fields and refineries.
Iraq outputs around 3 million barrels of oil a day, and industry experts are concerned that fuel prices will rise and cause problems for economic recovery in many countries should oil wells close due to the fighting.
Benchmark prices in the US and Europe have already spiked due to fears over how the skirmishes may play out in Iraq.
West Texas Intermediate (WTI), the US oil benchmark has traded at more than $107 a barrel this week, while Brent Crude, the global benchmark, floated around $114 per barrel.
“Rising energy prices are not good news for the global economy,” said Russ Koesterich, BlackRock’s Global Chief Investment Strategist.
Political instability rocks oil producers
“Most of Iraq’s oil comes from the south, rather than the northern oil fields where the fighting is taking place, but the action affects investment and the recruitment of the talent needed to run the oil fields.”
Koesterich sees the Iraqi oil dispute as part of a wider problem.
“Oil production is falling across the Middle East and North Africa region due to political instability,” he said. “Falls are noted in Libya as the government struggles to keep the nation out of civil war.
“Nigeria and South Sudan also have civil unrest affecting oil output.”
Libya’s oil production has recently collapsed from 1.5 million barrels a day to almost zero.
Meanwhile, another investment expert, BNY Mellon’s Richard Hoey, is flagging the US economy to expand year-on-year for the next five years.
US five-year GDP growth spurt
He claims US economic growth has averaged 2% over recent years and will grow to an average 3% over the next five years.
Hoey explained monetary policy was key to growth in the US.
“I expect to see monetary policy to stay relaxed,” he said. “Then the Federal Bank should gradually raise interest rates late in 2015 and during 2016. I don’t expect much to change too drastically before the next presidential election, but policy should tighten after the vote in 2016.”
As for growth in Europe and China, Hoey predicts a 1% to 1.5% increase in GDP in Europe and a soft landing for the Chinese economy as the property market and construction weaken.