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What Iraq's war may mean for the Keystone pipeline

Supporters of the Keystone XL pipeline have found a new talking point: Iraq.

Pipe is stacked at the southern site of the Keystone XL pipeline in Cushing, Oklahoma.
Getty Images
Pipe is stacked at the southern site of the Keystone XL pipeline in Cushing, Oklahoma.

Violence exploding in one of the world's largest oil-producing nations is ricocheting in the debate over U.S. energy policy. Backers of the pipeline, which would run from Alberta, Canada, to Texas, are pointing to the crisis in Iraq as a rationale for pushing the project forward.

Often billed as a possible component for supplying the U.S.'s voracious energy markets with crude oil, TransCanada's long-delayed $5.3 billion pipeline has been mired in delays for six years.

On Wednesday, the Senate Energy and Natural Resources committee voted 12-10 to advance a bill that would force the pipeline's approval. The vote takes place against a backdrop of rising oil prices, instability in oil-producing countries, and a domestic shale boom that remains a political hot potato in more ways than one.

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The pipeline has become caught in a proxy war between competing interests. Conservationists have opposed the project based on environmental concerns, while casting doubt on Keystone-related forecasts associated with job creation and oil shipments. Some land-rights advocates in Western states also oppose the construction of the pipeline across private land.

The energy industry has lobbied hard for the pipeline, however. In a conference call this week, the American Petroleum Institute, the oil and gas industry's lobbying organization, backed the Senate committee's vote and called on regulators to approve Keystone without further delay.

"The growing crisis in the Middle East, as well as ongoing tensions in Ukraine, makes clearer than ever that we cannot stand in the way of smart decisions today that will help to secure a stable supply of energy for our nation in the future," said Jack Gerard, API's president and CEO.

In an analysis this week, Securing America's Future Energy (SAFE), an organization that pushes for domestic energy independence, said that if Iraq should lose a third of its oil production, it could send oil up by as much as $40 more per barrel.

Read MoreExxon carries out major evacuation from Iraq: Oil official

"Political disintegration in Iraq along sectarian lines would add to the current oil price risk premium and the potential for significant upside would remain," SAFE said.

To some observers, high gas prices—linked to movements in Brent crude—and turmoil in places such as Iraq, Libya and Venezuela underscore how the U.S. economy remains subject to the vagaries of OPEC and international politics.

Read MoreIraq shockwaves felt across Gulf stock exchanges

"The bounty on U.S. energy independence is higher the more unstable the global environment is," said John Brynjolfsson, chief investment officer of Armored Wolf, with $700 million in assets under management.

Although the U.S. is producing more oil than it has in decades, it remains a net importer of crude.

By CNBC's Javier E. David

Energy

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