As Iraq’s mounting unrest pushes crude oil prices to their highest levels this year, a report Friday predicts that global oil demand will increase and Iraq will be a key producer.
The International Energy Agency report forecasts a jump in global oil demand, which affects both oil and gasoline prices, from 91.4 million barrels per day in 2014’s first quarter to 94 million during its last three months. It also says that Iraq was expected to account for 60% of production growth from the Organization of Petroleum Exporting Countries for the rest of this decade. Iraq, which has the world’s fifth-largest proven oil reserves, is now OPEC’s second-largest producer.
“While Iraq’s production potential is huge, so are the political hurdles it is facing,” the IEA says, noting the significant gains that Sunni insurgents have made in the country’s north since launching a military campaign earlier this month. The IEA says news of the Sunni advance sent prices for Brent crude — a benchmark for international oils — to nearly $113 a barrel, their highest so far this year.
Yet unless the conflict spreads, the IEA says it may not “put additional Iraqi oil supplies immediately at risk,” because most of the recent production gains have occurred in the largely Shia south. Iraq’s oil production reached its highest level in three decades this year, but since March, it has fallen about 10%, mostly because of northern unrest. Its exports are now coming from southern terminals near Basra.
“The question is, who is going to fill the gap? Saudi Arabia? That’s what the market is looking at,” says John Kingston, global news director for industry tracker Platts Energy.