President Barack Obama said today the US has seen no indication that fighting in Iraq has caused major disruptions in oil flows. But Washington will consult with Mideast Gulf producers about making up for any potential shortfalls.
Obama, addressing the swift military advances made by the insurgent group the Islamic State of Iraq and al-Sham (Isis), said he is contemplating military intervention. But Obama made clear no action was imminent and no US troops would be deployed there.
A splinter group of al-Qaida, Isis has gained control of a large swath of territory in western, northern and central Iraq, including Iraq's second largest city, Mosul. Obama described Isis as a "terrorist organization."
Obama said that "so far, at least, we have not seen major disruptions in oil supplies." If Isis were able to "obtain control over major output, significant refineries, that could be a source of concern."
Obama said that "if there do end up being disruptions inside Iraq, that some of the other producers in the Gulf are able to pick up the slack, so that will be part of the consultations that will be taking place during the course of this week."
The International Energy Agency, in its June Oil Market Report released today, estimated effective Opec spare capacity at 3.31mn b/d, with Saudi Arabia holding 80pc of those surplus volumes.
Opec's second-largest oil producer, Iraq pumped 3.41mn b/d in May, down slightly from 3.44mn b/d in April. Iraq has been targeting production of 3.7mn b/d and exports of 3mn b/d, excluding production from the northern Kurdish region, Iraqi oil minister Abdul Karim Luaibi has said.
Obama said the US will monitor events over the next several days, and he will have a better sense by the end of the weekend what steps he will take. Any kind of military action will take several days of planning, Obama said.
"People should not anticipate this is going to happen overnight," Obama said.
US secretary of state John Kerry said the US is providing enhanced aerial surveillance support to Iraqi forces.
Obama indicated Washington views Isis' success in Iraq as a threat to the US' security interests. "This poses a danger to Iraq and its people and, given the nature of these terrorists, it could pose a threat, eventually, to American interests as well."
But Obama said any military intervention to help Iraqi prime minister Nouri al-Maliki's security forces "has to be joined by a serious and sincere effort by Iraq's leaders to set aside sectarian differences, to promote stability and account for the legitimate interests of all Iraq's communities."
The US "is not simply going to involve itself in a military action in the absence of a political plan by Iraqis that gives us some assurance they are prepared to work together," Obama said.
Isis continues to advance towards Baghdad. Iraq's Kirkuk-Ceyhan oil export pipeline remains off line after repairs were stopped on 11 June as security broke down in the northern city of Mosul, where the line runs through. Any repairs are likely to be delayed until July at the earliest. Exports through that line were halted in March because of repeated insurgent attacks.