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It was just three days ago, Monday, 04 August, that I wrote about Kurdish oil producers shares falling as the militants of the Islamic State had taken new ground in northern Iraq, include control of the countries largest dam on Lake Mosul. Continued advancement, now eastward, by the militant troops is quickly eroding investor confidence in oil production operations in Kurdistan. The share price of Gulf Keystone Petroleum (LSE:GKP) fell today to its lowest level since 2010, dropping 11.36% from 77.00 to 68.24. That is a 15% drop from last Friday’s close at 80.25 and a 72% decline from its 52-week high of 245.00.
Still, at the noon hour today in London, GKP released a statement that “The Company’s operations in the Kurdistan Region of Iraq, including ongoing production and trucking operations at both Shaikan production facilities, remain safe and secure. While there is no immediate threat to any of the Company’s operations in the region, we continue to monitor the situation closely and operate with increased security as a precaution.”
It’s About to Come Apart
I am typing this sentence at 8:11 pm GMT and, unfortunately, this evening’s headlines are not going to buoy investor confidence. Reuters reported just minutes ago that militants had raised their black flag above a guard post at a Kurdish border checkpoint. Follow up reports are flowing in from most major news sources. Here is what is known at this point:
- France has called for an emergency meeting of the U.N. Security Council specifically to “counter the terrorist threat in Iraq.” French Foreign Minister, Laurent Fabius, said, “Given the seriousness of the situation — the first victims of which are civilians and religious minorities — France is requesting an urgent meeting of the Security Council so the international community can mobilize to counter the terrorist threat in Iraq and support and protect the population at risk.” The French have also announced that they are prepared to support the Kurdish forces.
- The U.S. is reportedly considering airstrikes against the Islamic militants to help protect the Kurds and the population in general. The White House issued a statement that it is “gravely concerned” about the growing crisis. One unidentified spokesperson said that a decision could be imminent.
- Pope Francis has called for international intervention to protect the communities of northern Iraq and Kurdistan from the onrushing Islamic militants.
- Kurdish officials urged the people to stay calm and tried to assure them that their forces would defeat any terrorist attacks. A Kurdish spokesman also denied that the Islamic rebels had raised their flag at either the checkpoint or the dam.
It’s About the Oil
If outside countries, including France and the U.S., do enter into the conflict, it would be promoted on the basis of a humanitarian crisis. But that would beg the question of why there has been no intervention in Gaza, the Ukraine, or even more so, Syria. Although millions will believe the justification, the real reason, as investors know, is all about the oil.
I realize that some will want to rebut that issue, citing the fact that the U.S. is far less dependent on Iraqi oil that it has been since May 1997, but the U.S. is so tied to the global economy that any disruption in oil production and distribution coming out of Iraq will, if not directly, indirectly affect the U.S. economy. The Center for Strategic and International Studies has noted that the U.S., “Is particularly dependent on the import of manufactured goods from three countries which are extremely dependent on energy imports. Those happen to be China, South Korea, and Japan. That’s why Middle Eastern oil still plays an important role in US policy. It is precisely because US security is global. It is not a matter of direct U.S. dependence, because what really counts is global prices, and what counts is the steady and predictable flow of oil to a global economy.”
It’s About Time
Because major powers are now considering intervention it may be in investors’ interest to try to remain calm. And, as I suggested on Monday, if the share price of GKP and the other energy producers in Kurdistan continues to decline, buy oil shares may be akin to finding your own gold mine. Stay tuned.
