Oil markets will see little lasting reaction to the uncertainty around Iraq’s next government amid elections this week that are expected to yield no clear majority, according to analysts at IHS Inc. and JBC Energy GmbH.
Prime Minister Nouri al-Maliki is banking on revenue from the highest crude production in 35 years to win him a third term in office when voting takes place tomorrow, even as Iraq struggles to improve security and upgrade roads, ports and housing for its 33 million people. At least 50 were killed in bombings yesterday, some targeting polling stations.
“Unfortunately, violence in Iraq is not a shock to the market,” Jim Burkhard, head of Global Oil Markets at IHS Energy, said yesterday in Dubai. “Unless there’s a debilitating attack on oil infrastructure, it wouldn’t have a lasting impact on oil prices.”
Maliki first took power in 2006 and after the next vote four years later formed a coalition that ended an eight-month void. Since then, the nation with the world’s fifth-largest oil reserves overtook Iran as the second-biggest producer in the Organization of Petroleum Exporting Countries.
Iraq is boosting sales of its main Basrah Light crude grade, pumped from fields in the country’s south and shipped from terminals on the Persian Gulf, even as sabotage has halted exports through a pipeline to the Mediterranean port of Ceyhan, Turkey. Maliki’s government has yet to conclude an oil-revenue sharing agreement with the nation’s Kurds that would allow crude to flow at full potential from the semi-autonomous Kurdish region in the north.
“The outcome of the vote is highly unpredictable,” analysts at JBC Energy GmbH said in a research note yesterday. “Sectarian and ethnic dividing lines will be a driving factor.”
Barring a major attack that damaged crude deposits or production facilities in the oil-rich south, prices will see at most temporary fluctuations due to election uncertainty, according to IHS. Brent crude futures, a benchmark for half of the world’s oil, are 0.8 percent higher this month and were trading at $108.49 at 8:44 a.m. today in London.
“It will take months to form a new government,” Robin Mills, head of consulting at Manaar Energy Consulting and Project Management in Dubai, said by phone April 27. “In the short term, there will be some violence around the election. That’s one reason to think oil prices will be higher this week.”