Have you felt pain at the pump lately? If not, either you’re rich or completely oblivious to the increase we’ve been seeing in gas prices. Although prices usually rise through summer time, this year, the increase has been rapid. Why? Well, the biggest reason for the prices at the pump going up has to do with what’s becoming known as the ISIS Crisis. Today, we’re going to talk about what’s happening in Iraq, what reaction gas prices have had, and what we can expect throughout the year. We’ve got quite a bit to discuss, let’s get right to it.
What Exactly Is Happening In Iraq?
What many consider to be a Muslim terrorist group ISIS, led by Abu Bakr al-Bagdadhi has been seizing land in Iraq. Recently, they declared a large area of Iraq as the new “Islamic State”. Every piece of land ISIS has seized has been seized as the result of aggressive bloodshed. Unfortunately, many believe that the government forces are too week to drive back the insurgents and reclaim lost territory. Currently, Muslim soldiers are stationed at the borders of the newly claimed “Islamic State” and threaten any outside force who makes an attempt at getting too close.
What Does This Have To Do With Gas Prices?
In the past month, we’ve seen a pretty sharp increase in oil prices. That’s because Iraq is one of the world’s largest producers of crude oil. History tells us that as we see political tension in Iraq, we’ll also see sharp increases in the prices of crude oil. The truth is that since 1990, 21 “destabilizing events” have happened in Iraq; each of them leading to an average of a 9.2% increase in the price of crude oil. So, any time we see political tension in Iraq, we can expect to see an increase in the price of oil; through a bit of research, the numbers become blatantly obvious.
How Have Oil Prices Reacted Thus Far?
In the past month, we’ve seen oil prices rise by about 4%. Although this seems like a pretty sharp increase, it’s actually pretty mild so far. The big fear comes from what seems to be likely to happen next.
What We Can Expect From Oil Prices In The Near Future
Most experts on the topic would agree that the affects we’ve seen thus far have been fairly muted; something I think everyone is happy to hear. However, many of the same experts also agree that if violence continues to spread through Iraq, the muted affect the ISIS Crisis has had will be quickly amplified. However, the harsh reality is that ISIS has already made a run at Jordan last week and continues to expand its newly claimed territory in Iraq. Is it even possible to think that even if nothing happened to stop the turmoil, things wouldn’t get worse? The bottom line is that if Iraqi forces don’t figure out how to drive back opposing militants and no one steps in to help, expansion of violence is inevitable.
On the other hand some would say that no matter how much the violence was to spread, looking at past trends tells us that within the year, the political matters will subside and prices will start to go back down. While I understand the use of statistics in this hypothesis, and how easy it can be to come to this conclusion, we’re going to have to agree to disagree here. Looking at a different set of stats tells us that the attacks and political turmoil are continuing to get exponentially worse. Almost every year deaths by way of Muslim majority terrorists groups like ISIS hit an all-time record high! Can we really expect the financial impact not to have a compounding effect as these crises continue to worsen? In my opinion, the answer is no. Until something drives these forces back, they will continue to move forward with a vengeance.
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Elise Blanford is the Chief Analyst at anyoption. Located in London in the UK she always has interesting insight on the most up to date market trends.