By Ujjavala Bothra

Edited by Nidhi Singh, Junior Editor, The Indian Economist

“Islamic State of Iraq and Syria (ISIS) – world’s richest terror group launches overnight attack on the largest oil refinery in Baiji, Northern Iraq with machine gun fire and mortars, Iraqi security forces said.” – The Telegraph

Last week, newspapers, news channels, radio channels, and the internet had been booming with the latest happenings in Iraq on an hourly basis. From the entry of Sunni Islamic militants into the Iraq territory to ISIS turning into a national force and killing Iraqi soldiers to US sending around 300 troops to Iraq and to the capturing of the largest oil refinery in the nation by the religious extremists, anything and everything has been reported. But some basic questions that arise are, what is happening in Iraq and who is responsible for this, why is the world panicking as a result of the Iraqi civil war, and what is it that comes to Iraq’s rescue in this entire mess? Through this article, the author tries to answer these questions.

What is happening in Iraq and Why?

After the withdrawal of US troops from Iraq in December 2011, signalling the end of US mission in Iraq (though the actual reason for penetration by the US in Iraq in 2003 has not been clearly justified), widespread violence continued in the nation with the Shiite rulers moving to arrest eminent Sunni political leaders leading to Sunnis losing trust and confidence in the Iraqi government. This golden opportunity was grasped by the richest terror group (ISIS) and they started brainwashing some Sunni Islamists against the government to be able to launch an attack on Iraq. The already betrayed Sunnis easily fell into their trap in the name of religion giving way to their plans. The fight for power and revenge between the two Islamistgroups ignited by the religious extremists is basically the cause of the raging civil war in the Iraqi economy. In fact on June 16 2014, ISIS brutally killed Iraqi soldiers and posted pictures of the same on social media in order to generate fear amongst the people. This is the ultimate example of terrorism in the name of religion. Analysts have come to the conclusion that the attack on Iraq highly resembles the attack on Syria with the only difference being that the attack in Syria was done openly with ISIS clearly specifying their aims but the attack in Iraq was clearly carried out in the name of religion.

How is the war affecting various world markets?

As Iraq is the second largest oil exporter, after Saudi Arabia, in the Oil and Petroleum Exporting Countries (OPEC), hence any upheaval in the nation will directly affect the global oil markets. As expected, the Iraqi civil war has led to speculations in various markets. Although the ISIS attack has not had a major effect on Southern Iraq wherein the major chunk of oil reserves exist, but predictions in the world oil market that the Iraqi civil war will reduce the global oil exports from the country have led to a spike in the world oil prices to $113.10 per barrelas on 18th June 2013 (an increase of more than 2$ per barrel). Moreover, though currently the amount of oil exports by the nation has not significantly decreased, but potential reports of oil production falling to 3.6 million barrels of oil per day from 4.2 million barrels per day has left the world in a doubtful state.

Let us consider the case of Indian Rupee. The entire set of transactions in the economy is based on speculations and predictions. For example, the oil export has not actually reduced but the war has indeed led to apprehensions about the oil production in the nation. Due to this threat, the Reserve Bank of India has started buying dollars and institutional investors have shifted to safer avenues of investment, all leading to a fall in the value of the Indian rupee which slipped to Rs 60.08 per dollar as compared to Rs 59.76 per dollar on 18th June 2014.

Thirdly, the world gold markets have been highly impacted. As the investors have shifted their focus to safer investment arenas like gold, hence the demand for gold is surging. This is evident by the fact that the gold prices have hiked to Rs. 27,000/10gm. This clearly depicts that the investor behaviour is turning out to be positive for the gold.

What and who comes to Iraq’s rescue?

The Shia government is finding it difficult to fight the Islamic Sunni Militants because of widespread fear generated by the ISIS. It has been noticed that a lot of Iraqi soldiers left the battlefield in order to protect themselves, leaving the future of the nation in jeopardy.

Surprisingly, in this grave situation, The United States of America till very recently did not provide any support to the Iraqi government but when the situation was out of control, 300 troops were deployed which provided some stability in the oil prices. Moreover, Iran’s Shia government has proved to be a great help to the Iraqi government by sending troops to the Iraqi economy. The fact that the people themselves including Sunni Islamists are now getting involved in the war to defend their nation is quite impressive. Also, a website, www.harimshia.org, has been set up to preserve and defend the shrines in the country.

UNESCO has raised concerns regarding the threat to Iraq’s cultural heritage as a result of the destruction of archaeological sites, holy places, museums, etcetera due to the ongoingcivil war. The end result of this civil war is something which will only be revealed with time, but what is known is that this war has caused enough destruction all over the globe with the greatest damage being suffered in Iraq.

Posted by The Indian Economist | For the Curious Mind