Since the first oil shock of 1973, instability in the Middle East has frequently been associated with higher oil prices. In an industry desperate for positive movement in crude price, the current turmoil in this region is having a limited impact. Saudi Arabian forces are at war in Yemen, civil war continues in Syria and deep security concerns persist in Iraq, but oil price remains depressed.
With ISIS militants and engineers in control of major oil fields in eastern Syria, including Omar and Tanak, the country’s production has fallen by more than 90% to below 25,000 bbl/d. Even with an estimated additional 12,000 barrels being sold on the black market, Syrian unplanned production outages are at their highest level on record. Imports are now required to meet basic needs in that country. Air strikes already target critical infrastructure within these fields and will likely reduce black market oil exports further as they intensify in response to the attacks in Paris and Sinai over the coming weeks.
In Iraq, a much larger oil market with theoretical potential to produce at a similar level to Saudi Arabia, crude production is increasing. The last four years have seen oil production rise 40%, from 2.4 mbbl/d in 2010 to 3.4 mbbl/d in 2014. Despite ongoing conflict between insurgents and the Iraqi Government, only the 2,000 bbl/d Qayara oil field is reliably in militant hands, according to the latest reports. While a lack of security limits growth potential and investment, the current conflict with Islamic militants is not impacting the Iraqi oil market enough to boost prices.
As international air strikes focus more intensely on removing potential for ISIS to re-take oil fields in Iraq, a material reduction in crude production from that country appears less likely than at this point last year, despite anticipated reductions in black market exports from Syrian fields. Unless militants are able to retake the Himrin or Ajil fields around Tikrit, production losses are expected to be minimal. The crude price bulls may need to look elsewhere for near-term supply disruptions.
Matt Loffman, Douglas-Westwood Houston
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