LONDON: An escalating crisis between the Iraqi government and Kurdish separatists is threatening the supply of oil and could push up prices, analysts warned on Tuesday.

Conflict would hit oil exports from Iraqi Kurdistan, currently estimated at around 650,000 barrels per day.

“The possibility of genuine shortage understandably supports oil prices,” said Tamas Varga, an analyst at oil market data company PVM.

Prices are already slightly up from the start of the week.

Brent crude, a European reference point, is selling for more than $58 a barrel for December delivery.

Brent prices had already reached a yearly peak of $59.49 on September 26, the day after a referendum was held on the independence of Iraqi Kurdistan.

Efforts by the Organisation of the Petroleum Exporting Countries (Opec) and Russia to restrict supply have eaten into reserves in industrialised economies.

This has made markets particularly sensitive to geopolitical events, as even a temporary disruption in supply can be difficult to stymie with reserves.

Markets have now turned to the Iraqi government’s claims on Tuesday to have taken control of two large oil fields in Kirkuk, following a peaceful retreat by Kurdish peshmerga fighters.

Prices had risen on Monday after Kurdish technicians stopped oil production in those two fields.

The fields had fallen under autonomous Kurdish control in 2014 when Iraq was destabilised by Islamic State group offensives.

The stand-off with Iraqi forces came after a Kurdish independence referendum last month in which Iraqi Kurds voted overwhelmingly to break off from Baghdad.

Goldman Sachs analysts said in a note that both sides for the moment had an interest in continued exports.

“From our calculations, both sides are incentivised to keep oil flowing, due to the low production costs and high revenue available per barrel,” they said.

Published in Dawn, October 18th, 2017