How Iraq’s Crisis Might Impact Singaporean Companies

For some, Iraq is just one other country in the Middle East that’s more than 7,000 kilometres away. But, though the country is situated far from where we are here in Singapore, there are ramifications for even companies here due to the ongoing conflict in Iraq.

What is happening in Iraq?

Currently, there’s a civil war brewing in Iraq that’s known as the ISIS (Islamic State in Iraq and the Levant) crisis. The ISIS was formed in April 2013 with its roots traceable to Al-Qaeda, the militant Islamic group infamous for its now-deceased former leader Osama Bin Laden. The fighting ongoing in Iraq is between the country’s government and ISIS insurgents.

According to the Telegraph UK, the rebels have recently captured a city named Mosul and are now just a few hundred miles away from Baghdad, the capital of Iraq. The conflict in Iraq might even make for unlikely allies with the possibility of the US and Iran working together to help quell the troubles in the country. In any case, the US is still discussing further military intervention in Iraq after recently sending in 275 military personnel to support its embassy in Baghdad.

The Impact of the Iraq War

Global oil prices have shot up since the ISIS insurgency in Iraq began with Brent crude oil hitting a 2014 record high of US$113 per barrel just yesterday.

The topic of oil remains almost inseparable from the mention of Middle Eastern countries as the region’s OPEC (Organisation of Petroleum Exporting Countries) is responsible for supplying a huge percentage of the world’s current oil consumption.

Iraq is OPEC’s second-largest producer so fears over the supply of oil would naturally spike following unrest in the country. But despite the ongoing ISIS conflict in Iraq, Bloomberg Businessweek had reported Thamir Ghadban as saying that the situation remains “calm” in the southern part of Iraq where three quarters of the country’s oil is produced. Ghadban is an advisor to Iraq’s prime minister.

Although conflicts in the Middle Eastern region have historically led to sharp spikes in oil prices, the situation might be more nuanced this time around. That’s because Iraq is actually seeking to boost its supply of oil, though the challenge posed to the country’s oil-supply-growth ambitions would be heightened following the latest ISIS crisis.

In any case, companies such as Rotary Engineering (SGX: R07) and Hyflux (SGX: 600), who derive significant revenue from the Middle East, may take a hit if the ISIS conflict escalates into even more serious fighting in the region.

On the other hand, oil/energy related businesses like Keppel Corporation (SGX: BN4) and Ezra Holdings  (SGX: 5DN) may stand to benefit from rising oil prices.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.