Resource Investor, VA
Oct 14 2007

Turkish Outrage a New Risk Factor for Oil Prices

By Stephen Clayson
14 Oct 2007 at 03:06 PM GMT-04:00

LONDON (ResourceInvestor.com) — As the U.S. House of Representatives
prepares to vote on a resolution officially terming the Ottoman
massacre of Armenians during 1915-17 genocide, Turkey is poised to
act as a new destabilising force in the Middle East.

Turkey, the only member of NATO with a majority Muslim population and
a key ally to the U.S. in the occupation of Iraq, is threatening
retaliation if the resolution, which carries no punitive measures
other than condemnation, passes. It already carries the approval of
the House Committee on Foreign Affairs.

The provision of the Incirlik Air Base in southern Turkey is the
country’s main way of assisting with the occupation of Iraq. If it
really wanted to, Turkey could deny the U.S. the use of the base,
which is a key logistical hub for U.S. forces in Iraq. Its loss would
be a severe inconvenience as well as an embarrassment.

At the same time, Turkey is threatening to strike across the Iraqi
border at Kurdish rebels using northern Iraq as a base to attack
Turkish targets.

Already, fears that Turkey will cause difficulties in Iraq have
forced oil prices up to a new record level of more than US$84 a
barrel. How far could things go?

Well, looking to a worst case scenario, the loss of Incirlik Air Base
and skirmishes between Kurdish rebels and Turkish forces in northern
Iraq could be too much for an incoming U.S. president in 2009,
precipitating a U.S. withdrawal from Iraq.

This would leave Iraq at the mercy of Iranian provocateurs and would
probably lead to its division along sectarian lines, with a Shiite
section backed by Iran, a Sunni section backed by Saudi Arabia, and a
Kurdish section out on its own.

And who knows whether this state of affairs could be reached without
conflict between any of the nations having stakes in the outcome,
which would have the obvious potential to disrupt oil exports from
the region as a whole. Exports from Iraq would likely be disrupted
anyway.

What about a best case scenario? Even if Turkey invades northern
Iraq, it likely won’t stay long. Selective cross border raids against
Kurdish rebel bases are more likely. Also, the oil production of
northern Iraq is only a small proportion of the country’s output.

How exactly having the Ottoman massacre of Armenians called genocide
is significantly worse than having it called a massacre will be
confusing to many, but the Turks take it seriously. Turkish
nationalist sentiment is already inflamed in the wake of several
attacks on Turkish troops by Kurdish militants based in Iraq, which
the U.S. is supposed to be in control of. Bear in mind though that 22
other countries have so far declared what happened to the Armenians
to be genocide.

The distant threat of supply disruption as a result of Turkish ire
has already moved oil prices. Although it is most likely that little
will come of Turkey’s displeasure at having the Ottoman massacre of
Armenians declared genocide by the U.S., even if the House of
Representatives approves the resolution in question – we won’t know
for sure until the vote, which is due anytime before the end of the
year.

But whether the resolution passes or not, definite news of Turkish
incursions into northern Iraq in pursuit of Kurdish rebels will serve
as a separate bone of contention.

So deteriorating U.S. relations with Turkey look like being one more
ongoing contributor to the significant risk premium in today’s oil
price.

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From: Emil Lazarian | Ararat NewsPress