“[ISIS] presents a whole new reality for the region, which just isn’t reflected in the oil market at the moment,” said Daniel Yergin, Vice Chairman of IHS, in an interview with The Telegram. “It’s an increasingly grave situation for most of OPEC and the Middle East. At some point the security issues will start to come back into the price of oil.”
The Islamic State terror group is already in the backyard of OPEC members like Iraq and Libya, and no country is shortsighted enough not to recognize they could be next. Both of mentioned nations have called on international support in assisting with the ongoing war. Saudi Arabia has been victimized twice recently in two separate suicide bombing attacks, increasing the uneasiness in the region.
Commandeering oil refineries has been an effective way to generate revenue for ISIS, and their ability to increase their territory is well-noted. The group is estimated to hold 80% of all oil and gas activity in Syria, and their presence in northern Iraq has generated much concern for OPEC’s second-greatest producer. ISIS was generating an estimated $2 to $3 million per day in 2014 by selling oil on the black market, according to some estimates. It’s worth noting that the group’s believed leader of its underground oil network was killed by United States forces last month.
The foothold of ISIS has grown. The ultra-violent, radical militant army no longer relies entirely on oil sales to fuel its finances; rather, the group preys on its enemies through tax collection and extortion to build up its revenue. ISIS does have the resources to spread, as it has in Iraq recently. Yergin believes additional ISIS momentum could rattle the oil markets and push prices up to the $100 range.
A Political Conundrum
OPEC, by rule, leaves politics at the door at its ordinary meetings. However the ongoing friction between several of the nations may be difficult to ignore. Iran is in a much different place now as opposed to the last meeting, as a removal of sanctions now appears to be a real possibility, which will surely not sit well with a cartel that has essentially thrown production quotas out the window. Iraq, Kuwait and the UAE all set 20-year production highs in April, while Saudi Arabia’s rig count is the highest on record. The majority of Iraqi production is sourced from the southern region, an area where ISIS has yet to reach.
The United States, meanwhile, has distanced itself from the ugly battles in the Middle East. “How U.S. national and foreign policy will integrate itself again with the region is unclear,” said Yergin.
President Obama’s stance regarding the rise of ISIS has come under heavy scrutiny from his opponents. The countries mired by the threat of certain peril from the terrorist group appear to be on their own, for the time being. As the OPEC members convene on Friday and continue to evaluate the stabilization of the oil market, some members may be more motivated by their immediate national security needs.