The United States began to drop relief supplies to beleaguered Yazidi refugees fleeing Islamist militants in Iraq, but there was no immediate sign on Friday of U.S. air strikes to halt the sweeping advance of Islamic State fighters.
President Barack Obama said he had authorized limited bombing to prevent "genocide" and blunt the onslaught of Sunni radicals who have captured swathes of northern Iraq and advanced to a half hour drive from the Kurdish regional capital, Arbil.
It was the first time since the Islamists - an offshoot of al-Qaida - began a lightning offensive in June, overrunning swathes of northern and western Iraq and declaring a "caliphate" in captured areas of Iraq and Syria, that the United States has opted for military action.
Deeply reluctant to engage U.S. forces in the Middle East again after costly wars in Iraq and Afghanistan, Obama said he had approved a "targeted" use of air power to protect U.S. personnel if Islamic State militants advance further towards Arbil, seat of the Kurdistan regional government.
He made a late-night television address after the first U.S. transport planes dropped food and water to members of the Yazidi ethno-religious minority sheltering in hostile mountain terrain after the Islamists captured their home town of Sinjar.
Reuters photographs on Thursday showed the insurgents had raised their black flag over a checkpoint just 45 km (28 miles) from Arbil, bringing them closer than ever to the city of 1.5 million which is also the region's economic capital.
The Islamists' advance and the threat of U.S. military action sent shares and the dollar tumbling on world financial markets, as investors moved to safe haven assets such as gold and German government bonds.
U.S. oil majors Exxon Mobil and Chevron operating in Iraqi Kurdistan evacuated expatriate staff on Thursday, industry sources said, and the shares of several oil companies operating in the region fell for a second day on Friday.
However, a spokesman for Austria's OMV energy company, which has worked in the region since 2008, said the Islamists' advance was having no impact on its operations.
"Everything for us is under control," he said.
"AMERICA IS COMING TO HELP"
Obama said air strikes, which would be the first by the U.S. military in Iraq since its withdrawal in 2011, could also be used to support Iraqi and Kurdish forces trying to break the Islamists' siege of Sinjar mountain, where tens of thousands of Yazidis have taken refuge.
"Earlier this week, one Iraqi in the area cried to the world, 'There is no one coming to help'," said Obama. "Well, today America is coming to help."
Yazidis, ethnic Kurds who practice an ancient faith related to Zoroastrianism, are among a handful of pre-Islamic minority groups who survived for centuries in northern Iraq. They are believed to number in the hundreds of thousands, most living in Iraq, with small communities in the Caucasus and Europe.
"We can act carefully and responsibly to prevent a potential act of genocide," said Obama, calling the militants "barbaric."
U.S. officials also announced an acceleration of military supplies to the Kurdish regional government, whose peshmerga forces have been routed by the Islamists as they seized control of a dozen towns and the country's biggest dam in the last week.
Obama insisted he would not commit ground forces and had no intention of letting the United States "get dragged into fighting another war in Iraq".
The U.S. Defense Department said planes dropped 72 bundles of supplies, including 8,000 ready-to-eat meals and thousands of gallons of drinking water, for threatened civilians near Sinjar.
Northern Iraq has long been one of the most diverse parts of the Middle East, home to isolated ethnic and religious minorities who survived centuries of pressure to assimilate into the Arabic-speaking Muslim world.
Tens of thousands of Iraqi Christians have also fled for their lives after Islamic State fighters overran their hometown of Qaraqosh on Thursday.
In Baghdad, Yazidi lawmaker Mahma Khalil told Reuters up to 250,000 Yazidis had fled the Islamists and were in desperate need of life-saving assistance.
"We hear through the media there is American help, but nothing on ground," said Khalil, who is in touch with Yazidis on Sinjar mountain. Relief supplies that had reached the area so far were woefully insufficient, he said.
"Please save us! SOS! save us!" he said several times. "Our people are in the desert. They are exposed to a genocide."
Yazidis are regarded by the Islamic State as "devil worshippers" and risk being executed by militants seeking to establish an Islamic empire and redraw the Middle East map.
A United Nations humanitarian spokesman said some 200,000 people fleeing the Islamists' advance had reached the town of Dohuk on the Tigris River, in Iraqi Kurdistan, and nearby areas of Niniveh province.
Tens of thousands have fled further north to the Turkish border, Turkish officials said.
Questions were quickly raised in Washington about whether selective U.S. attacks on militant positions and humanitarian airdrops would be enough to shift the balance on the battlefield against the Islamist forces.
"I completely support humanitarian aid as well as the use of air power," Republican Senator Lindsey Graham tweeted after Obama's announcement. "However the actions announced tonight will not turn the tide of battle."
The Kurdish regional government insisted on Thursday its forces were advancing and would "defeat the terrorists," urging people to stay calm. Local authorities cut off social media in what one official said was an attempt to stop rumours spreading and prevent panic.
The mood in Arbil on Friday was calm but apprehensive. One resident said some residents had returned home after initially leaving the regional capital in fear of the Islamists' advance.
"Two days ago there was fear but now it's better," said Omaid, a 37-year-old dentist on his way to the market. "Two days ago, people left the city if they had homes in the villages and went there. Now people's state of mind has improved and those who left have returned."
Residents were stockpiling food and weapons, he said.
Faced with deep Congressional and public reluctance, Obama backed away from using air power against President Bashar al-Assad's forces in Syria last year after chemical weapons were used. Assad has since regained the upper hand against divided opposition forces in a three-year-old civil war.
However, the president said preventing a humanitarian catastrophe and averting a threat to American lives and interests in Iraqi Kurdistan were ample justification for the use of U.S. military force in Iraq.
Seeking to keep some pressure on Iraqi Prime Minister Nuri al-Maliki, Obama insisted on the need for an Iraqi government that "represents the legitimate interests of all Iraqis" to reverse the militants' momentum.
Maliki is a member of Iraq's Shi'ite majority, and Sunnis, Kurds and some fellow Shi'ites accuse him of running a sectarian government, causing resentment that fed the Sunni insurgency. He is negotiating to hold onto power for a third term after an inconclusive election in April, although Sunnis, Kurds and some Shi'ite leaders have demanded he step aside.
Neighbouring Iran, which along with Washington had backed Maliki, is working diplomatically to try to find a less polarising figure who can united Iraq's sectarian factions. Tehran has also sent elite Revolutionary Guard officers to help organise the defence of Baghdad, Iranian sources say.
Obama sent a small number of U.S. military advisers in June in an effort to help the Iraqi government's efforts to fend off the Islamist offensive.
The Islamists' latest gains sparked an international outcry.
U.N. Secretary-General Ban Ki-moon said he was "deeply appalled" by the attacks by Islamic State militants. The U.N. Security Council condemned the group and called on the international community to support the Iraqi government.
French President Francois Hollande's office said after he spoke by telephone with Kurdistan president Masoud Barzani that Paris was prepared to support forces engaged in the defence of Iraqi Kurdistan. A French official said the assistance would be "technical" rather than military.
The Islamic State poses the biggest threat to Iraq's integrity since the fall of Saddam Hussein in 2003. Its fighters have proudly posted videos on the Internet of themselves massacring prisoners as they advance.
Shi'ite militia which have rallied to protect Baghdad have also been accused by rights groups of kidnappings and killings. With thousands of people killed and hundreds of thousands fleeing their homes, the past two months have brought back violence unseen in Iraq since the worst few months of its 2006-2007 sectarian civil war under U.S. occupation.
The Islamic State's gains have prompted Maliki to order his air force to help the Kurds, whose reputation as fearsome warriors has been eroded by the past week's defeats.
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