Airlines reel as Iraq turmoil brings surge in oil price

ESCALATING violence in Iraq has sent crude oil prices to a nine-month high amid fears supplies could be disrupted.

Sunni-led militants are tightening their grip on towns in the north and east of Iraq, sparking concerns that their advance south could put the output of the region's second-biggest oil producer at risk.

Brent crude hit dollars 114.69 on Friday, its highest level since last September, and its biggest weekly gain this year. Analysts say a loss of Iraqi supply could add dollars 30 to the price.

Spiking oil prices heaped further pressure on airlines, already hurt by a profit warning from Germany's Lufthansa. British Airways' parent, International Airlines Group, was down almost 10 per cent on the week, closing at 379p. EasyJet fell 9.1 per cent on a week earlier and Thomas Cook was down 11 per cent.

While most of Iraq's oil exports come from south of Baghdad, far from the Islamist rebel fighters, their advance has heightened fears over output. America has threatened military action against the militants, including possible air strikes. "Iraq has been one of the positive stories in terms of increased production," said Ole Hansen, head of commodity strategy at Saxo Bank.

"However, the fighting will make it close to impossible to develop untapped resources in the northern and eastern parts of the country. The key question is whether Baghdad, Karbala and the Shi'ite-controlled oilfields and export facilities in the south can remain calm and avoid becoming embroiled in the conflict."

The International Energy Agency last week played down fears the crisis would disrupt Iraq's output in its monthly oil market report.

"Concerning as the latest events in Iraq may be, they might not for now, if the conflict does not spread further, put additional Iraqi oil supplies immediately at risk," said the Paris-based agency.

It said output from the south had been rising and production had hit a 30-year high. However, the agency underlined Iraq's long-term importance for the global energy market. It said "roughly 60 per cent of the growth in OPEC crude production capacity for the rest of this decade will come from Iraq".