Iraq conflict drives up oil, puts stocks on pause
Investors should watch for hints of inflation, which could further shake a stimulus-addicted market.
By Anthony Mirhaydari, InvestorPlace
The complacency and calm that had lulled investors into a dreamlike state has been shattered, replaced by surging oil prices and horrific scenes out of northern Iraq.
A Sunni terrorist group known as the Islamic State in Iraq and the Levant (ISIL, or ISIS, depending on translation) -- which could actually be considered a small army at this point -- continues its push toward Baghdad and is nearing key oil production and refining facilities.
As a result, stocks suffered their worst weekly decline in two months as gold and oil prices surged in response. Traders are jumpy, as evidenced by a down-and-up churn near the closing bell on Friday related to rumors that Iraqi Prime Minister Nouri al-Maliki had been killed.
With the situation on the ground in Iraq deteriorating fast, more market volatility is likely heading into next week's Federal Reserve policy meeting. Here's why:
ISIS has already taken Mosul, Iraq's second largest city, and captured tanks, helicopters and other equipment as well as hundreds of millions of dollars from a central bank branch there. The Kurds in northern Iraq have taken Kirkuk and its oil field. And the country's Shiites are calling for Iranian allies to help.
Driven by this conflagration, wholesale gasoline prices have surged to levels not seen since 2013 and are now just 10% from the all-time highs hit in 2011 and 2012.
Further increases look likely before this is all done.
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The large Baiji oil refinery in northern Iraq, with a 310,000 barrel per day capacity, is reportedly still under government control. And the large Iraq-Turkey oil pipeline (ITP) that runs north has been shut for maintenance since March and hasn't been damaged.
But should ISIS take Baiji (protected by Iraqi special forces at the moment) or destroy or damage the ITP, oil and gasoline prices could shoot much higher. There's another large oil refinery, the Daura facility, in the disputed region with a capacity of 300,000 barrels per day.
Overall in April, Iraq produced 3.34 million barrels per day vs. a sustainable production capacity of 3.65 million barrels, according to Deutsche Bank.
It's worth remembering that a similar geopolitically driven rise in energy prices in 2011, caused by the Arab Spring uprising in Libya and elsewhere, resulted in a spike in inflation that forced the Fed to end its "QE2" bond buying program. The pullback in stimulus ushered in a tumultuous summer of trading that year that ended that August with the most violent correction of the bull market thus far.
Watch for comments about the upward drift in inflation in the Fed's policy announcement next week. Any hint that price pressures could force a sooner-than-expected short-term interest-rate hike could really rattle this stimulus-addicted market.
For now, I continue to recommend investors remain cautious with a focus on the safe-haven and inflation-production qualities of precious metals and the related mining stocks. NovaGold (NG) is up more than 18% since I added it to my Edge Sample Portfolio back on June 5.
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Sagely advice; there ARE similarities with the 2011 Libya uprisings. Iraq could be divided up, or if it remains intact we will see Iran benefiting from the increased influence, There's really little we can do either, since I can't see our men fighting side by side with the Quds forces.
None of this will calm the financial markets
We must protect the profits and interests of the big oil corporations at all costs!
Alert the Army, Navy, Air Force, Marines and deploy the National Guard!
We need boots on the ground and fast!
Every American family must make sacrifices! No sacrifice is too great for your corporation!
Those corporate profits depend on us all!
Be patriotic and force your children to serve in the military instead of going to college.
We need soldiers, not engineers and doctors!
Without record high corporate profits we have nothing, we must save those profits at all costs!
Better buy your flags quick before the prices go up!
Buy extras just in case!
STOP VOTING FOR RE-TEAPUBLICANS AND DEMOCRATS BEFORE THEY COMPLETELY DESTROY OUR NATION!
Yet America continues to export higher amounts of finished Crude products. There is plenty of Crude Globally, what does or doesn't happen in Iraq won't change that. It's just another opportunity for Big Oil, whether here or there, to gouge consumers.
Of course I spoke and wrote of this problem, many times, before our latest incursions into Iraq and Afghan...
That it would be a lose-lose-lose situation...
American and Coalition lives lost...As soldiers or advisors.
Civilian casualties or refugees...And a demand on American Immigration and other Countries.
And 10s-100s of Billions in lost Treasure, monetarily...Never to be paid back or recouped.
We have supported different avenues of intent, for decades since WW2, in the Middle East..
The Majority have ended in "absolute failure."
Pakistan/Afghanistan...Border disputes and the War with Russia.
Saudis....that ended in chasing us out.
Kuwait...Where we/they had an established border, but it cost us Millions or more.
Other North African Countries...And the Arabian Peninsular.
And now back in Iraq and Afghan....
Wish someone could point out what we have gained, and what has really been changed say since 100-200 years ago...Maybe even a thousand or more...??
Except they have more money and bigger, better built cities in some places.
And the U.S. has spent trillion upon trillions of dollars.
we could use this current situ to force al-maliki to finally integrate the three nations into one. do some reading ... better yet join the foreign legion and make a diff ...
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As geopolitical tensions threaten to spin out of control, investors are wondering how best to position their portfolios for the global turmoil.
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