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Crude prices edge up as ISIL overruns most of key refinery

Gasoline filled in to plastic bottles on display at a roadside shop in the  Kirkuk, Iraq.Gasoline filled in to plastic bottles on display at a roadside shop in the  Kirkuk, Iraq.
Gasoline filled in to plastic bottles on display at a roadside shop in the Kirkuk, Iraq.Onur Coban/Anadolu Agency—Getty Images

Sunni jihadists from the Islamic State of Iraq and the Levant (ISIL) have overrun most of the vital Baiji refinery in Iraq, threatening supplies of power and gasoline to the capital, Baghdad,  Reuters reported Wednesday.

“The militants have managed to break in to the refinery. Now they are in control of the production units, administration building and four watch towers. This is 75 percent of the refinery,” Reuters quoted an official in the refinery as saying.

If ISIL can take control of the refinery, then it will be able to wreak havoc on life in the capital, which the remnants of the country’s official. U.S.-trained army are joining forces with Shia militias to defend.

The fighting still doesn’t directly affect the assets that produce and export most of Iraq’s oil to world markets. For that reason, crude oil prices Wednesday were still within their recent ranges at midday in Europe Wednesday. The benchmark crude blend of West Texas Intermediate was quoted on the Intercontinental Exchange at $106.89 a barrel at 0715 EDT, up 53c from the previous U.S. close.

The capture of the refinery could weaken the Iraqi government’s hold on its capital, raising the risk that neighboring Iran, the largest Shia state, will send in its armed forces to defend its co-religionists. Its president Hassan Rouhani said the country would defend holy Shia shrines in Iraq earlier Wednesday, Reuters reported.

Any direct involvement by Iran could in turn raise the risk of Sunni powers such as Saudi Arabia also getting involved.

U.S. President Barack Obama Tuesday ruled out using airstrikes to contain ISIL forces, who have overrun much of northern and eastern Iraq after seizing the country’s second city, Mosul last week.  Instead, he said, the U.S. will provide military intelligence to the Iraqi government and exert diplomatic pressure on Prime Minister Nouri al-Maliki to rally all parts of Iraqi society against the jihadists.

Crude oil prices have risen 11% since the start of a year and hit a nine-month high last week. The price of gold, which also tends to rise in times of volatility due to “safe haven” buying, has, however, lagged, falling 0.1% to $1271.40 a troy ounce. Gold has been pulled down by suggestions that the Federal Reserve could start to tighten monetary policy faster than expected. Gold prices react negatively to signs of higher interest rates because holdings of gold pay no interest.