Why the uprising in Iraq could cause oil prices to spike (Part 1 of 7)
About Iraq
The Republic of Iraq is a country in the Middle East that borders Turkey to the north, Iran to the east, Kuwait to the southeast, Saudi Arabia to the south, Jordan to the southwest, and Syria to the west. The capital, Baghdad, lies in the center of the country. Around 97% of the country’s 36 million people are Muslim, mainly Shias, Sunnis, and ethnic Kurds.
The economy
Iraq’s economy is dominated by the oil sector, which has traditionally provided about 95% of its foreign exchange earnings. The oil-rich nation has attracted U.S. oil majors, including Exxon Mobil Corporation (XOM) and Chevron Corp. (CVX), which have a good presence in the Rumaila and Kurdistan regions of Iraq, respectively.
However, the oil export industry, which dominates the Iraqi economy, generates very little employment. The lack of development in other sectors has also resulted in 18%–30% unemployment and a depressed per-capita GDP.
Exchange-traded funds (or ETFs) in the U.S., including the SPDR Energy Select Sector ETF (XLE), the Vanguard Energy Index Fund (VDE), and the iShares Dow Jones US Energy Sector Index Fund (IYE), are heavily invested in companies like Exxon Mobil and Chevron.
Insurgence in Iraq
The American presence in Iraq ended in 2011, but the Iraqi insurgency between the Shias and Sunnis continued and Iraq suffered from political instability. The Shia Arabs of Iraq constitute about 60% of Iraq’s population and have controlled the central government since the U.S. invasion. Sunni Arabs began protesting with massive demonstrations and turned to armed attacks, along with more radical Sunni groups fighting next door in Syria, like Islamic State in Iraq and Al-Sham (or ISIS). In 2012 and 2013, violence increased as fighters from the Syrian Civil War spilled into the country.
Recently, Iraq has become the target of another uprising.
A violent group of Sunni militants, known as ISIS, has swept across the border into Iraq and taken control of several cities, including Mosul (Iraq’s second-largest city), with the goal of forming a radical Islamic state based on Sharia law.
What is ISIS? Read on to the next part of this series to find out.
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