Post-war Iraq has grown into a major force in the global oil market. Reaching a 30-year high, its production and exports have climbed steadily since 2011—making Iraq the second largest producer in OPEC, and the seventh globally.
Iraq has filled in the production gaps caused by violence in Libya and sanctions in Iran. Crude oil prices have been stable. The Wall Street Journal states: “crude volatility recently had ground down to multi-year lows.”
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But that was before rapid gains by extremist insurgents in northern Iraq put all that progress in jeopardy, raised gasoline prices, and sent “shudders through financial markets.” A barrel of oil is now trading at its highest level since September.
The sectarian fighting in Iraq had already caused a 4 percent increase in world oil prices—which is expected to translate to a 5 to 10 cent a gallon bump in the price of regular unleaded gasoline.
Most of Iraq’s oil fields are in the south and are, so far, believed to not be at “immediate risk.” Yet, the New York Times (NYT) reports: “The collapse of Iraq would bring an international oil crisis. …It would mean crude oil would go up to $150 a barrel.” “But,” NYT continues, “oil prices have been rising modestly compared with what would be expected from a major crisis in the Middle East.” Why? According to the NYT, “growing oil production in the United States and Canada has helped cut American oil imports, helping to keep global supplies hardy.” The report states: “World oil supplies are relatively robust at the moment, which explains why oil price increases have not been significant. Global supplies are up a million barrels a day from a year ago, mostly because of North American production.”
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If Iraq’s production continues to be threatened, as it looks like it will, John Kingston (global news director for industry tracker Platts Energy) asks the obvious question: “who is going to fill the gap?”
The obvious answer should be the United States—after all, North American production is credited with keeping prices relatively stable compared with what would normally be “expected from a major crisis in the Middle East.”
Unfortunately, President Obama failed to protect America’s economic security. He could have helped cut America’s dependence on Middle Eastern oil—about 300,000 barrels of Iraqi oil are used in the U.S. each day. Instead, he has presided over a decline in production on federal lands.
While U.S. production has helped blunt the short-term impact of the Iraq conflict, a recent report from the Congressional Research Service (CRS) makes the decline in production on federal lands clear. According to the CRS report, under the Obama administration, oil production on federal lands has fallen 6 percent–while oil production on state and private lands increased by 61 percent.
By not developing available resources, and not approving the Keystone pipeline, Obama has made America more vulnerable to oil market instability. Had Keystone been approved, as originally expected more than five years ago, it could now be bringing additional resources to market and helping stabilize global supplies—filling the gap created by unrest in Iraq, Libya, Russia, Nigeria, etc.
For the U.S., the silver lining of the black cloud over Iraq could be renewed public awareness of the importance of developing our energy resources. With his phone and his pen, Obama could increase access and expedite drilling on federal lands and approve the Keystone pipeline. However, that would require standing up to his environmental allies like billionaire Tom Steyer—something he’s not likely to do.
The U.S. could have filled the gaps, but now we can’t.
Photo credit: Christiaan Briggs (Flickr)
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