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Common Cents

Iraq, oil & budding terrorists

Ralph Murphy

(6/27/2014) Lightning advances now sweeping Iraq and Syria by the Islamic State in Iraq and Syria or ISIS, appear the result of religious, political, and economic factors which while largely unique to Iraqis and Syrians, appear to include Turkey as well. The ISIS military, originally estimated to be about 3,000 soldiers, has made advances in its Syrian staging area, and now controls much of Sunni Iraq. This is much higher from original estimates. What is not known is whether this reflects revolutionary adhesion of disparate Sunni factions against the ruling Shias or a longer term, ruling structure that could reach from the Mediterranean Sea too much of Iraq.

Iraq is currently about 32-37% Sunni Muslim. The ruling Shiites are 65% of the population and control the vast majority of the nation's oil reserves. These are estimated to be fifth in the world at proven crude reserves by the U.S. Energy Information Administration (EIA). Iraq was one of the original five founders of the Organization of Petroleum Exporting Nations (OPEC), and currently ranks as the world's sixth largest exporter despite hostilities in the region. Most crude finds its way to American and East Asian markets.

Southern pipelines in Shia - populated areas have maintained output with an agreement signed in December, 2009 allowing international "joint ventures" to profit the companies such as ExxonMobil with a monetary reward for each barrel extracted. Back then it was $1.40 a barrel while the wellhead price varied between $35 and $82. The Iraqi government enjoyed the remainder of per barrel earnings, but was subject to market conditions, foreign and domestic, such as labor unrest, saboteurs, and relevant, dependent economic activity.

Economist James l. Smith noted that markets are more likely to react to "shocks" such as war, than to hedging or speculation. Shocks may send the short run or "spot" price spiraling, given a sudden rise in demand in anticipation of further hikes. The market calms down if the "shock" is unfounded which is hopefully the case of Iraq whose major fields include the Majnoon, Halfaya, and West Qurna fields that flow to ports in the Persian Gulf.

ISIS was a Sunni religious body drawing its inspiration from the highly orthodox Wahhabi group in Qatar and Saudi Arabia. It was a spin off from al-Qaeda and they fought effectively in Northern Syria where it may have come into contact with the Islamist oriented Turks. Turks who had pipeline interests in the region and domestic concerns with an influx of mostly Sunni refugees from Syria. President Bashar al-Assad's minority Alawite Shiite faction (mystical religious) is linked to Iran and constitutes 15% of the population- the Sunnis 74%.

ISIS was expelled from al-Qaeda in 2014 as its leader, Ayman al-Zawahiri, was considered "too extreme" after the ISIS expanded into Syria with about 2500 fighters. Then the group began to grow and mature on the battlefields of Syria and now Iraq under their leader Abu Bakr al-Baghdadi. It may be linked to Turkish oil interests more than their refugee housing concerns.

In May 2014 Iraqi Kurdistan delivered one million barrels of crude oil to the Turkish Mediterranean port of Ceyhan via a new pipeline originating in the fields of Northern Iraq. These fields are now controlled by the Kurdistan Regional Government (KRG). Economic income for the region was estimated at over $23 billion in 2011 in an area with over 6 million Sunni Kurds.

The Kurds have historically been a homeless diaspora, but with Turkey's help- may be in a position to control 1.3 billion barrels of an estimated 45 billion barrels that are in reserve. The region is nominally linked to the Shia majority in Baghdad. This is ironic, because the Turks consider their own Kurds a source of separatist concern.

The pipeline benefits the Turks, Kurds, American and Israeli importers. But, the current situation provides little cash to the Iraqi government. While the Iraqi government appears unsettled by its economic loss- they are also dealing with the loss of non-Kurd, Sunni areas to ISIS. Commencing in June 2014, this radical group successfully invaded Iraq’s largest Anbar province - along with the nation’s second-most populous city of Mosul. They also captured the Sunni Fallujah, and Nineveh provinces. It is now clear that the ISIS strength was grossly underestimated..

The Kurds are Sunnis and appear to have a fledgling military. However, they are "ripe" for attack and assimilation into ISIS. Inexplicably, there is currently no apparent effort to do so. The Kurds speak an Iranian-based language, and aren't tied culturally to Baghdad.

Aging Iraqi federal pipelines were connected to Kurdistan's (KRG's) new line on the Turkish border. Again, it appears the Shia are being eclipsed by Turkish maneuvering and may be providing the Kurds protection from ISIS. They are consolidating much of non-Shia Iraq and even resource-poor, but strategically important Syria. Command and control in the rapid ISIS gains haven't been evident in the Sunni groups until recently. About the time that the Kirkuk to Ceyhan line became profitable. The United Nations High Commission on Refugees reports that Turkey is reeling from the flood of over 500,000 Syrian refugees. It is thought that many are being trained and sent back into rival Syria as a viable opposition.

The ISIS military ground gains have proven effective in Sunni-populated regions. They have not penetrated Shia regions to any large extent, although bombs have been unleashed in Baghdad. These may be tied to lingering Sunni elements in the city.

Iraq's State Oil Marketing Organization called the oil flow and loading from Turkish ports from Kurdistan to be "an illegitimate deed of Turkish Authorities". This has not been translated into ground gains by the Shia in that region. ISIS remains territory rich, but resource poor. Iran would likely intervene were their Shia neighbors demographic areas truly threatened. Radical ISIS has shown an ability to make military ground gains, but no ability to govern.

Prime Minister Nouri al-Maliki has taken much of the international blame for the collapse of Iraq, but has failed to control the Sunni regions now in contention.

ISIS may gain control over a wide swath of territory in Syria and Iraq, but is likely to become an unstable nation without external support - including economic aid. Maybe Turkey can do it. They certainly control a new oil provider. The status quo there was certain to fail given the demographics and associated violence. Whatever they call this potential new nation - it will surely be religiously factionalized within the Sunnis. And it will be resource poor. Fertile ground for budding terrorists.

Ralph Murphy is a former member of the CIA Headquarters Staff in Langley, VA.

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