Crude oil prices are expected to hit new highs following recent Turkish-Kurdish political tensions

Whenever there is any escalation in political tensions in the Middle East, oil markets ring alarm bells. In fact, it has become an established fact that any political development in the world’s most turbulent region spurs oil prices to new highs.

This fact was conspicuously reflected in last month’s record prices in oil markets. No sooner had Turkey’s Prime Minister, Recep Tayyip Erdogan, decided to ask the parliament for permission to pursue Kurdish rebels in northern Iraq did the price of crude oil take an upturn. And indeed the Turkish parliament voted to authorize possible military operations against the bases of the separatist Kurdish Workers Party (PKK).

Members of the parliament cast an overwhelming 507 votes in favor of the motion to 19 against, a move that increases the possibility of a military operation within the next year. The vote came after a series of attacks were blamed on the PKK which claimed the lives of 30 soldiers and civilians. Evidently, a mountain ambush by the PKK rebels that killed 13 commandos caused more outrage in Turkish political circles. In addition, public pressure was so immense that the government could not lie still.

“Those attacks were a milestone. Our policy of restraint over northern Iraq has ended,” explained the spokesperson of the Turkish parliament’s foreign relations committee. “We need to take decisive action against the PKK and those who harbor it. Everyone must understand that the situation is not sustainable as it is,” he pointed out.

On the other side, the Iraqi government urged the Turkish government to be wise and patient. Iraqi Prime Minister, Nouri Maliki, said he was ready to conduct urgent talks with Turkish officials to defuse the crisis and said a diplomatic solution had to be found. “The Iraqi government calls on the Turkish government to pursue a diplomatic solution and not a military solution to solve the problem of terrorist attacks which our dear neighbor Turkey has witnessed from the PKK,” a spokesman of the Iraqi government commented.

Worried about the possibility of further chaos in Iraq — and a soar in oil prices as well, in case oil supplies were disrupted — Washington is leading international calls for Ankara to exercise self-restraint. However, it seems that Turkish patience is wearing thin.

Although Erdogan tried to soothe the international community’s fears by saying that asking the parliament for permission to pursue the rebels didn’t necessarily mean that Turkish forces would act immediately, he still has a carte blanche from the parliament at hand.

Not surprisingly, news about the possible Turkish incursion in northern Iraq catapulted oil prices into the $90 range and above. Light, sweet crude for November delivery rose as high as $90.07 a barrel, which is considered by all means an all high record.

The amount of oil produced in northern Iraq, as a matter of fact, is very small. And the major oil pipeline linking the Iraqi town of Kirkuk, south of the Kurdish region, has been shut for a long time since the 2003 invasion of Iraq. But the fear is that the military dispute between Turkish forces and Kurdish rebels could escalate and interrupt oil production in neighboring countries, which account for 20% of global production.

There are other concerns about a possible Kurdish attack on a vital pipeline in Turkey, which carries 700,000 barrels everyday from Azerbaijan to the port of Ceyhan.

Consequently, as prices continued to soar, oil producers’ cartel OPEC has hinted it may boost production to help bring prices down. In addition, OPEC leaders could meet on 17 November, three weeks ahead of their next planned meeting, in an attempt to curb the soaring prices.

Despite the skyrocketing oil prices, oil is still below inflation-adjusted highs hit in early 1980. Depending on the adjustment, a $38 barrel of oil in 1980 would be worth $96 to $101 or more today. However, in case a Turkish incursion into northern Iraq took place, analysts predict, oil prices might hit the $100 mark.

In fact, many other analysts argue that the supply and demand mechanism was not the driver behind the recent rise in oil price. Rather, they believe investors who keep buying are the driving force behind the price rise to more than $80.
“Consumers will now see higher prices at the pump in the coming months and weeks,” said John Kilduff, vice president of risk management at MF Global UK Ltd.
The Turkish-Kurdish political tensions aside, experts argue that global demand for oil is so high that supplies may not keep pace. According to the International Energy Agency, demand will rise by an average of 2.2 million barrels next year, compared with 1.5 million -barrel rise in 2007. Regardless of military disputes that might interrupt oil output, demand will rise 2% up to 2012, the agency says. It is also widely expected that demand will soar from 90 million barrels daily to 140 million over the coming 25 years.

By Mohamed El-Sayed

Download