Oil.

Oil stocks have had a nice run up on the uncertainty surrounding Iraqi production with WTI at 9 month highs. Barring a shock they're probably fairly valued at these levels. However, a shock may be what we get if fundamentalist militias export their vision into Jordan or Lebanon and elicit an Israeli response. Time to lighten but not go aggressively short. Rosneft, Lukoil and Gazprom have made up their post-Crimea sell off. The hidden story here may be the purchasing by Israel of Kurdish oil shipped via Turkey through Ceyhan to Ashkelon. For Turkey in particular the benefits of such a transshipment agreement could be meaningful in equity and FX terms. Some 2 million barrels are already said to have been transported this way with exports forecast to reach an annual rate of 20 million tonnes, some of which will be re-exported to Asia. 

In Europe the British Prime Minister seems to be failing in his attempt to stop the arch-federalist Jean-Claude Juncker from taking over the top slot at the European Commission. There are rumours that at Friday nights dinner in Ypres ( oh the irony of it ! ) he will use the '' Luxembourg Option " and demand that nothing perceived to be of such vital national importance can be taken without a unanimous vote. As they say in France ' bon chance '. Europes real problem is one of adjustment. Britain and France, the old Imperial powers, are seeing their economic and geo-political importance slip away. The Brits are ahead of the French in recognizing this. Germany is the natural aspirant to pole position but its recent ( ie last 150 years ) history makes it loathe to trumpet its ascendancy too loudly. Russia and China are of course delighted to see the EU rocked by a lack of unanimity; America less so.

Despite the Scottish Referendum and the increased likelihood of a British Exit from the EU entering the mainstream , Sterling continues to stick resolutely north of $1.69. The Canadian Dollar is also motoring against signs that further rate cuts are firmly off the table.

A new week

British Prime Minister David Cameron had hoped to rally more support for his blocking tactics against former Luxembourg Prime Minister Jean-Claude Juncker. In this he has been remarkably unsuccessful. The very real possibility now exists that Juncker will be nominated by 25 out of 28 governments and the United Kingdom ( together with Sweden and Hungary ) will find itself with an arch-federalist ( and presumably anti-British ) head of the EU. Ouch ! It has been a long time since the British Foreign Office has failed so miserably and the Brits ( never popular at the best of times ) were left so isolated in Europe. 

London is now desperately hoping that new Italian Prime Minister Matteo Renzi will swing behind the opposition to Juncker. Renzi is young, has a mandate for change and may be willing to see a reform minded President of the Commission emerge. As part of a deal being discussed the current ECB Chief Mario Draghi may be put forward as the governments candidate to replace ageing Italian President Giorgio Napolitano in two years time. Draghi's place would then be taken by Bundesbank President Jens Weidmann. 

With ISIS fundamentalists continuing to advance the US is left in a quandary. There are already signs that the Afghan Taliban are taking heed of what is happening in  Iraq. A US response will need to address not only the situation in Iraq but also the likelihood that a similar reversal may occur in Afghanistan. Expect drone attacks to signal a more hands on response. The resignation of PM Maliki would be a good signal to all parties that reform is belatedly taking hold.

Iraq and the oil price.

The capture of Mosul by the forces of Islamic State of Iraq and al-Sham ( ISIS) could lead to the dismemberment of Iraq. Certainly, the authorities in Baghdad seem unable to respond to the advance of the radicalised Sunni militias in an effective manner. This dismemberment is not something Washington wants. So it looks as if the US will need to reverse its planned withdrawal and increase the level of support it provides the government of Prime Minister Maliki. This is a strange turn of events as it now means that Iran and the US will be working to defeat the Sunni militants and  prevent the collapse of the Iraqi government in Baghdad. Iran is already organizing the arming and transfer of Shia militants from their heartlands in the south to the northern combat zone.

Washington is deeply unhappy. It finds itself sharing goals with Iran in Iraq while at the same time opposing it in Syria . Washington is also making  soundings to Tehran to achieve a breakthrough on Iranian nuclear capabilities. Pity the poor US ambassador in Riyadh who has to reassure his host government that American policy is working.

Expect 1) more US arms sales to Iraq - Apaches, 2) the use of missile equipped US drones to attack ISIS military concentrations, and 3) growing alienation between the Obama administration and Riyadh and America's other allies in the region. To confuse matters further disenchanted ex-military leaders from Saddam Husseins army are said to be making common ground with ISIS in the Ninawa and Diyala provinces. Fragmentation of the country into Sunni and Shia regions is now a real possibility. To top it all the Kurdish Peshmerga forces now find themselves faced with a new threat .

Iraq is OPEC's second largest exporter. Is it any wonder that the oil price has firmed ?