As turmoil in Iraq continues to develop, ISIS militants inch close and closer towards the heartland of oil in Southern Iraq. The threat became fully apparent on Wednesday, when ISIS militants attempted to seize control of Iraq's largest oil refinery, but were repelled by security forces at the facility. Uncertainty regarding Iraq's future has resulted in economic reverberations in the United States. The DOW Jones dropped 102 points on June 12, and oil prices have crawled up to $115 per barrel.
Hikes in oil prices have affected Americans at the pump, we've now reached a national average of 4 dollars per gallon of gas, which is the point where Americans begin feeling the heat from prices. Relatively speaking, Americans are insulated from increasing costs that naturally stem out of crisis. Due to laws that developed out of the 1973 oil crisis, American crude can only be sold so long as the Federal government deems it consistent with our national interests. Regardless of if it is a positive policy on balance, this means that oil prices are naturally lower in America vis-a-vis Europe. Gas prices in the Europe are routinely higher than in America and regularly reach as high as 10 dollars in some places during times of economic distress. While many champion the American oil boom as being a remedy to the problem of having the world's energy supply situated in the most politically volatile country on earth, the International Monetary Fund has said that international oil prices are more closely tied into Iraq's oil output than America's (partially due to the aforementioned restrictions on exports).
Luckily, it seems as if the American economy will be able to withstand the increasing turmoil in Iraq. Macroeconomic Advisers, a Saint Louis-based economic consulting firm, has not revised its forecast for the American economy. Even a draconian increase in oil prices--say, $10 per barrel--would only slow down economic growth by two- or three-tenths of a percentage. This would translate to an unfortunate reduction in the speed at which our economy expands, and a slower decrease in the unemployment rate. But overall, the transpiring events in Iraq thus far hardly represent a major threat to the American economy. With that said, if Iraq is unable to get a handle on the advance of ISIS militants, then America could be faced with a major crisis. Ifinsurgents managed to take most or even all of Iraq's oil fields, then prices could skyrocket exponentially. This, of course, would have an enormous impact on global financial institutions. To use a point of comparison, the 1973 oil crisis set off an era of stagnation in the Soviet Union, stagflation in America and Europe, and (more positively) resulted in Japan shifting its economy from oil intensive industries to electronic based ones. Granted, as a qausi-state actor, ISIS would more than likely continue to sell oil from refineries that it seizes. But as we've seen in Libya, reinvigorating oil industries ravaged by conflict can be extremely difficult. Further, it's questionable if the United States and its allies would do business with a terrorist state.
Therefore, it is essential that America ensure that Baghdad is able to regain control over renegade provinces. Most importantly, policies promoting sectarian divides between Sunni's and Shiites need to be implemented. However, building intelligence architecture, providing greater air power, division-level planners and advisers, and SOF should be offered as well.
--Thomas
Hikes in oil prices have affected Americans at the pump, we've now reached a national average of 4 dollars per gallon of gas, which is the point where Americans begin feeling the heat from prices. Relatively speaking, Americans are insulated from increasing costs that naturally stem out of crisis. Due to laws that developed out of the 1973 oil crisis, American crude can only be sold so long as the Federal government deems it consistent with our national interests. Regardless of if it is a positive policy on balance, this means that oil prices are naturally lower in America vis-a-vis Europe. Gas prices in the Europe are routinely higher than in America and regularly reach as high as 10 dollars in some places during times of economic distress. While many champion the American oil boom as being a remedy to the problem of having the world's energy supply situated in the most politically volatile country on earth, the International Monetary Fund has said that international oil prices are more closely tied into Iraq's oil output than America's (partially due to the aforementioned restrictions on exports).
Luckily, it seems as if the American economy will be able to withstand the increasing turmoil in Iraq. Macroeconomic Advisers, a Saint Louis-based economic consulting firm, has not revised its forecast for the American economy. Even a draconian increase in oil prices--say, $10 per barrel--would only slow down economic growth by two- or three-tenths of a percentage. This would translate to an unfortunate reduction in the speed at which our economy expands, and a slower decrease in the unemployment rate. But overall, the transpiring events in Iraq thus far hardly represent a major threat to the American economy. With that said, if Iraq is unable to get a handle on the advance of ISIS militants, then America could be faced with a major crisis. Ifinsurgents managed to take most or even all of Iraq's oil fields, then prices could skyrocket exponentially. This, of course, would have an enormous impact on global financial institutions. To use a point of comparison, the 1973 oil crisis set off an era of stagnation in the Soviet Union, stagflation in America and Europe, and (more positively) resulted in Japan shifting its economy from oil intensive industries to electronic based ones. Granted, as a qausi-state actor, ISIS would more than likely continue to sell oil from refineries that it seizes. But as we've seen in Libya, reinvigorating oil industries ravaged by conflict can be extremely difficult. Further, it's questionable if the United States and its allies would do business with a terrorist state.
Therefore, it is essential that America ensure that Baghdad is able to regain control over renegade provinces. Most importantly, policies promoting sectarian divides between Sunni's and Shiites need to be implemented. However, building intelligence architecture, providing greater air power, division-level planners and advisers, and SOF should be offered as well.
--Thomas