Oil ion Global Economy Series: Oil price higher over Kirkuk conflict between Iraq and Kurdistan

Oil price is heading higher on Monday as the risk of a direct conflict between Kurdistan and Iraq increases to the highest level. The situation has remained tense since Kurdish Independence referendum on 25th September, where a majority of the Kurdish voters voted for independence. Last week, both Iraq and Kurdistan have been amassing forces near border region of Kirkuk, where an important Kurdish oil hub is situated.

Reports have started arriving, which suggests that Iraq has launched a major operation in the Kurdish held region of Kirkuk, advancing towards oil field and major military base. Lieutenant Colonel Salah el-Kinani, of the Iraqi army's 9th armoured division, reported to Reuters news agency that the aim of the operation is to take control of the K1 airbase, west of Kirkuk. Latest reporting suggests that Iraqi forces have taken control of vast areas outside the city of Kirkuk without facing any resistance from Kurdish fighters.

Kurdistan Region Security Council (KRSC) has confirmed the attack and said the Kurdish forces were attacked on two fronts by Iraqi army using U.S. military equipment including latest Abrams tanks, yet reports suggest that both the airbase and oil field remain under Kurdish control. KRSC said in a statement that Kurdish Peshmerga forces will continue to defend Kurdistan and called the attack as an unprovoked one after days of amassing military forces near Kurdish border.

Kurdish forces took control of oil-rich Kirkuk after the Iraqi army fled a major offensive by the Islamic State of Iraq and the Levant (ISIL) armed group in 2014. Since then, there has not been an agreement between the KRG and the federal government in Baghdad about who should control the area and benefit from its vast oil wealth. With the threat of Islamic State diminishing in the region, it seems that Iraq is looking to gain back control of the region.

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