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KAI RYSSDAL: It’s not like the oil markets needed any more stress. But they got it all the same today. Insurgents in Iraq blew up a crucial pipeline down near Basra. That’s in the southern part of the country, where most of Iraq’s oil is. Crude prices took a corresponding jump, up above $108 a barrel before closing at about $107.50 in New York. Marketplace’s Jeff Tyler had a look at pricing cause and effect.
JEFF TYLER: The attacks could reduce southern Iraq’s oil exports by at least a third. In the past, pipeline disruptions have been fixed relatively quickly. But there is a larger concern.
Severin Borenstein is director of the University of California Energy Institute. He says escalating violence could disrupt Iraq’s oil industry at a time when it’s benefiting from high oil prices.
SEVERIN BORENSTEIN: “Iraq is taking in a lot of revenue from the oil industry right now. Having their oil industry taken off-line, even fifty percent of it, would be a pretty major hit to their economy.”
If things get worse for Iraq, Borenstein says the ripples could affect the global market. But not everyone agrees.
PHILIP VERLEGER: “In today’s oil market, it is totally insignificant.”
That’s energy economist Philip Verleger. He says Saudi Arabia has been pumping extra crude to compensate for any Iraqi shortfall. And there’s plenty of oil on the world market.
VERLEGER: “The supply is there. It’s just, the way it’s priced, they can’t afford to buy it. So, we could take Iraq out of the market for six months and nobody would notice a difference.”
He says the soaring price of oil can be blamed on fear. But not the fear of violence abroad. Instead, it’s a fear of inflation at home. As the Federal Reserve has cut interest rates, Verleger says investors have been seeking safe haven in commodities – like oil. And if inflation does creep into the economy, more investors could warm to oil commodities.
If Iraq can stem the violence and revive its oil industry, it stands to profit.
I’m Jeff Tyler for Marketplace.
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