Oil prices are now considered by many to be the biggest risk to global financial markets having taken over the mantle from Europe for the moment.And all the headlines seem to be focused on the threat from Iran – whether it is Iran halting oil-exports, Iran threatening to cut off access to the Strait of Hormuz, or other countries potentially striking on Iran.
But Alastair Newton, Nomura’s senior political analyst thinks the real threat to oil prices may come from Iraq:
“…Both the governance and security situation appear to us [to] have deteriorated further since the US withdrawal (the latter borne out by rising civilian deaths from acts of terrorism), obliging us to stand by our earlier conclusion that, of all the countries in the MENA region, Iraq currently appears to be the one most likely to succumb to civil war.
Total loss of Iraqi oil – 2.7mbpd of which 1.9mbpd (equivalent to pre-crisis Libya and Yemen combined) – would be a serious blow to global oil supply. Indeed, if our assessment is correct that a military strike against Iran’s nuclear programme may disrupt global oil supply only briefly (see below), we believe that Iraq may pose a more significant threat of a protracted oil price hike than Iran. In other words, for all the headline attention which Iran is likely to continue to attract, we urge market participants to keep one eye over their shoulder on the Iraqi side of the Gulf.”
In terms of a sustained downturn in oil supply and related increase in prices, Newton argues Iraq could prove to be a bigger threat than an Israeli strike on Iran.
Newton thinks an acceleration of Iran’s uranium enrichment program at Fordow could speed up an Israeli attack though the threat is likely to decrease if Iran engages in negotiations with the international community.
He also thinks Iran is likely to shy away from trying to block the Strait of Hormuz since it could provoke U.S. military action. Nigeria which has seen an increase in violence at the hands of the Boko Haram and political events in Venezuela could pose a risk to oil prices.
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