Sectarian violence in Iraq sent the price of oil skyrocketing on Thursday, propelling both Brent and West Texas Intermediate up more than two percent to their highest levels of the year amid growing concerns about a threat to global supply.
After a delayed reaction to turmoil raging in the country, oil prices soared as open warfare between rebel forces—threatening a reconquest of Iraq barely a few years after U.S. forces departed—and the government spilled on to the world stage. Iraq is a member of OPEC, second only to Saudi Arabia as one of the world's largest producers of crude.
With violence threatening Iraq's civilian population and overwhelming the country's security forces, a shadowy group known as the Islamic State in Iraq and Sham (ISIS) has managed to seize control of key cities including Mosul, the country's second-largest, Ramadi, Falluja and Tikrit. Fears about global supply mounted, as reports surfaced that Russian tanks had moved into beleaguered Ukraine, sending crude on a tear and overwhelming the impact of lackluster U.S. economic data.
"That's the big story: what will happen if...the (insurgents) don't get what they want? Oil prices will go significantly higher," said Richard Hastings, macro strategist at Global Hunter Securities. "It's history in the making."
As the flames of instability rage in Syria and Libya, another major oil producer, "the map of the Middle East is being rebuilt," he added.
Until recently, Iraq's oil production had recovered to levels seen prior to the 2003 war that destabilized the country. The country pumped 3.6 million barrels of crude a day in February, an annual output record that exceeded 1979's water mark.
Analysts say that although the U.S. energy renaissance has helped to contain the threat of an oil shock, risks to the stability of global oil supply have heightened considerably.