June 12 - As Islamist fighters sweep through northern Iraq and close on its biggest oil refinery, oil futures spike higher on worries over supply. Will the deteriorating situation lead to a long-term hike in prices? David Pollard reports on the impact of the Middle East's latest security threat.
A man in a mask pledges a new Sunni state. Telling the crowd Iraq will be sacrificed in the process. It's amateur video - and can't be verified - but these pictures offer a glimpse of new threat. Islamist fighters from an al-Qaeda splinter group are redrawing the map of northern Iraq. In a matter of days seizing Mosul, Tikrit - and surrounding the Baiji oil refinery, the country's biggest. Reuters Energy Columnist, John Kemp. SOUNDBITE (English) REUTERS, ENERGY COLUMNIST, JOHN KEMP, SAYING: ''What's happening in Iraq at the moment is raising concerns about the country's territorial integrity, whether or not these ambitious plans that the country has to raise oil output by millions of barrels a day in the coming years will ever be realized if the country sort of splits apart." Those worries helped push Brent crude futures to a three-month high above $111 per barrel. Turkish stocks also suffering after militants took nearly 80 Turks hostage in Mosul. Though the overall impact, so far, is muted, says Carsten Brzeski of ING. SOUNDBITE (English) ING, SENIOR ECONOMIST, CARSTEN BRZESKI SAYING: ''We have seen so many geopolitical risks over the last couple of months. They have been weighing sometimes on sentiment but if you look at the recovery ongoing in the Eurozone, none of these geopolitical risks were really able to derail the recovery." For now, markets wait to see what action Baghdad might take. Its military appears little able to deal with the advance. Kurds in northern Iraq may also seize the opportunity to push their own separatist agenda. Latest reports say they've seized control of Kirkuk - itself a major oil reserve. Vast shale wealth in the US has helped keep a lid on long-term oil prices. That, and the prospect of greater supply from Libya and Iran - though they haven't come through yet. SOUNDBITE (English) REUTERS, ENERGY COLUMNIST, JOHN KEMP, SAYING: ''In the short term, we're seeing this sort of growing number of outages. First of all, we saw South Sudan, then Libya, then Nigeria. Iran's oil has been kept largely off the market by sanctions and now, we're seeing mounting problems in Iraq, all of which means that you can see lots of oil in the future but in the near term, the market remains fairly balanced." Thousands are fleeing the Islamist advance. These families leaving Mosul for shelter in the Kurdish city of Arbil. As for the militants themselves: many now fear their next stop will be the capital, Baghdad.