Should the insurgency now being waged in Iraq continue, the former national security adviser to Vice President Dick Cheney warns, the United States and much of the world could suffer serious economic consequences.
"Since 1973, every single recession has been preceded by, or occurred concurrently with, a spike in oil prices," says John Hannah, who worked for Cheney and in the State Department under Presidents George H.W. Bush and Bill Clinton.
"The continued advances of ISIS [the Islamic State of Iraq and Syria] into Baghdad and southern Iraq could seriously disrupt Iraq's oil industry, with quite devastating effects on the global economy."
Hannah, now a senior fellow at the Foundation for Defense of Democracies, also serves as an adviser to the Washington-based Securing America's Future Energy (SAFE), an organization committed to enhancing U.S. economic and national security through reduced dependence on oil.
Hannah told Newsmax, "Right now, the direct threat to Iraqi oil production is limited. However, if you're a Western oil operator with people and equipment on the ground, and you see the barbarian hordes approaching the gates of Baghdad and southern Iraq [where Iraq's major oil fields are], you're going to want to get out fast."
Hannah spoke to Newsmax as most of the Western embassies in Baghdad were being evacuated. Among the several Western businesses that have been operating in oil-rich Kurdistan is Genel Energy, whose chief operating officer is onetime BP President Tony Hayward.
"The market was spooked a bit after the ISIS seizures of Mosul and Tikrit last week," said Hannah, noting that the price of Iraqi oil went from $108 per barrel to $114, its highest since last September.
Because of the foreign investment that has taken place since Saddam Hussein was overthrown in 2003, he explained, Iraq is now exporting 2.5 million barrels a day and is the second-largest oil producer in OPEC (the Organization of Petroleum Exporting Countries), after Saudi Arabia.
As an example of the geopolitical importance of Iraqi oil, Hannah pointed to the fact that Iraq's rising production in recent years helped make possible crippling Western sanctions against Iran's oil industry, part of the effort to end Tehran's nuclear program.
"Rising Iraqi production made up for the loss of Iranian exports," Hannah explained, "thereby minimizing the disruption to global markets and avoiding any damaging price spike."
Put another way: "If Iraq sneezes, the whole world economy gets a cold."
Although energy production in the United States has experienced a boom in recent years, and oil consumption is more efficient than in the past, Hannah noted that "we will continue to be vulnerable to high and volatile oil prices, which are set in the global oil market, as long as the U.S. transportation sector remains almost totally dependent on oil."
"This is true of other countries that are self-sufficient in oil production, such as Canada, Norway, and the United Kingdom. This is what happens in a global market — we're always going to be vulnerable to events happening in some of the most unstable and anti-American regions of the world."
Hannah cited a new study by SAFE, which concluded that "further turmoil and fragmentation in Iraq could potentially lead to higher prices on the global oil market. Combined with rising global demand in the second half of 2014, the loss of even one-third of total Iraqi production would essentially eliminate global spare capacity and would generate an oil price increase of up to $40 per barrel."
"If Iraq enters a period of protracted instability," according to SAFE, "the consequences are likely to include sustained higher oil prices and slower global economic growth."
Hannah pointed to ISIS' seizure of several small oil-producing facilities in Syria, as well as threatening a major refinery in Baiji in northern Iraq, and its seizure of the Iraqi Central Bank branch in Mosul, which contained an estimated $400 million.
"ISIS is fast turning itself into a bona fide state with territory, a conventional, mechanized military force, and large-scale economic assets," he said. "And it will take a lot less than that $400 million in the Iraqi Central Bank for them to finance another 9/11."
John Gizzi is chief political columnist and White House correspondent for Newsmax.
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