No Immediate Threat To Oil Supply
BMI View: We see no immediate threat to Iraqi oil supplies from attacks by the Islamist militant group ISIS, and we maintain our Brent forecast of USD108/bbl for 2014. We do not expect major gains for ISIS in the oil-producing south, as government support is much stronger and the willingness of military forces to defend the region is significantly higher.
We see no immediate threat to Iraqi oil supplies despite the takeover by the radical jihadist group the Islamic State of Iraq and the Levant (ISIS) of much of the country's north. ISIS claimed on June 12 that it will target the capital Baghdad and the sacred Shi'a cities of Karbala, and Najaf in the south. However, the insurgents are highly unlikely to take over southern Iraq, from where all of Iraq's oil is currently exported.
The majority Shi'a Iraqi army was ineffective and reportedly unwilling to defend majority Sunni northern Iraq from ISIS. However, much of its 930,000-strong security forces, including battalions trained for urban warfare, are stationed in Baghdad and southern Iraq, and their willingness to defend the majority Shi'a south will be higher. Popular support for the Iraqi state is also stronger in the south; thousands of Iraqis reportedly volunteered to defend Baghdad against ISIS, and Shi'a militiamen are establishing a battle line 60 to 70 miles north of the capital. At the same time, demography is beginning to count against the insurgents as they enter mixed provinces such as Diyala, and the risk of overstretching will diminish ISIS's ability to undertake a large-scale offensive in the south.
|ISIS Unlikely To Take Over South|
|Iraq - Map of Key Oil Infrastructure|