ISIS Defeat In Iraq Could be a Blow to Oil

A recent boom in oil production has caused an imbalance in supply and demand that has left oil prices near lows.  The increased supply has actually made the United States a net-exporter of crude oil. Still, the world tends to look towards the middle east when trying to find the direction of crude oil prices. So, a recent headline that Iraq would join OPEC in limiting oil supply sent crude prices higher.

Investors may be getting the wrong signals.  Supply should only remain high. This is especially true if Iraq can stabilize their geo-political environment, specifically by routing ISIS. Today, it was reported that Iraqi militias actually cut off ISIS in Mosul by capturing a key route in and out of the city. 

Iraqi forces managed to win back full control of the #Mosul's Southern front, killing over 950 #ISIS terrorists pic.twitter.com/VLifrlwKS8

— Syria Today (@todayinsyria) November 19, 2016

Once Iraqis finally regain control of Mosul, the process of rebuilding will begin. That's going to take a lot of money. Mosul is a city with an official population of 664,000, but nearly 1.5 million live in the surrounding area.  For two years, ISIS terrorists imposed strict laws and punishments on the residents of the city. Thousands of refugees have fled, but many may return after the battle ends. The infrastructure may be in bad repair and homes may need to be rebuilt. Iraq may need to pump more oil to get things moving again.

Freedom of movement for residents of #Mosul, Iraq must be respected https://t.co/cGaYZikSrF pic.twitter.com/Z0J3XQHW4J

— UN Refugee Agency (@Refugees) November 19, 2016

Recently, General David Petraeus indicated that this would be a generational struggle and the challenge won't be the defeat of ISIS, but what comes after.

I have no doubt that coalition assets will, in the weeks ahead, do so much damage to the surviving Islamic State elements in Mosul that the battle there may well be less intense than many have feared. Thus, the most significant challenge in Mosul will not be to defeat the Islamic State; rather, it will be the task we faced there in 2003: to ensure post-conflict security, reconstruction and, above all, governance that is representative of and responsive to the people. All of this will have to be pursued largely by Iraqis, of different allegiances, without the kinds of forces, resources and authorities that we had.

The most important resource in Iraq is, of course, oil.