The beginning of the international military campaign against the jihadist group ISIL has potential implications for global and Middle East Markets.
The extremist organisation has set up its own black market for the oil fields it controls in Syria and Iraq. Political decisions can lead to economic consequences and there already has been a negative reaction in the markets. But how long can that last and how deeply it could it be felt? It all depends on how long the campaign lasts.
The United States has been leading the international coalition attacking ISIL, which has been dubbed the wealthiest terror group in the world.
There have been airstrikes in areas it holds in Syria and Iraq, particularly targeting oil installations to cut off its funding.
Petroleum products have become one of ISIL;s main income sources. They sell at super low prices through intermediaries in the region who smuggle the shipments on. It is estimated ISIL could be making as much as 3 million dollars a day from the trade.
It controls 7 oil fields and refineries in northern Iraq, and 6 fields in Syria, specifically in the Deir al-Zour province, according to experts.
The sale of that black gold on the black market has led to even gloomier forecasts for the GDPs of the countries affected.
The initial military strikes had a negative impact on EU and US markets, but it is investors in the region who have suffered most.
The hardest hit were Saudi Arabia and the UAE.
The geopolitical tensions have raised investors concerns around the Middle East, particularly as Britain’s prime minister has warned the US and its allies could be waging this war with extremists for years to come.
For more on these issues, Business Middle East’s Daleen Hassan spoke Nour Eldeen Al-Hammoury, Chief Market Strategist at ADS Securities in Abu Dhabi.
DH: Airstrikes by the US and its allies are being carried out on ISIL positions in Iraq and Syria, how do you think the markets are going to react if this continues ?
DH: What is the impact on the Arab oil trade from these air strikes?
NAH: “Yes we’ve seen some declines. However, these markets are also sensitive to any geopolitical tensions. These effects are not expected to be in the longer term. It’s only a short term play due to the fears of an expansion, that strikes might continue or might expand to a regional war.
The concerns are more about the economic weakness and the US and Europe. There is good liquidity in the region and a number of excellent opportunities for investors.
DH: So far there hasn’t been any major effect on global oil prices, but is that likely to change in the near future?
NAH: “We might have expected there to be a rise in oil prices with the potential impact on supplies in the region, especially with the on-going situation in the Ukraine. But this has not been the case. “We have seen oil prices declining with some countries looking to support these prices. The region is very use to factoring in this type of risk and clearly thinks that at the moment, even with airstrikes, the region will remain stable.
DH: Do you think that the air strikes against ISIL could block their oil sales and really hurt them financially?
NAH: “This is not a question that we can answer. It is clear from the region’s response and the international response that ISIL has created many enemies. These groups will look to marginalize the organization and at the moment oil supplies do not appear to be a powerful factor in this process. If the forces who are combined against ISIL want to take this approach and block their black market operations then we could see this reflected in the global oil price, especially as we go into the winter period in the northern hemisphere.”
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