gas prices

Violence has exploded in Iraq. Crude oil prices are spiking to 9 month highs. So, why haven’t we seen gas prices spike yet?

First, let’s take a deeper look at Iraq. Sunni militants aligned with the ISIS, a group that even Al-Qaeda thinks is a little extreme, made headlines when it took over Mosul on June 10. Since then, crude oil prices have jumped about $3. They’re also up about $10 from early May. Not that big of a rise compared to other Middle East crisis in recent years.

There’s a couple of reasons for that. One, fighting has been mostly to the north of Baghdad. A good chunk of Iraq’s oil production lies south of Baghdad. Most think ISIS will not be able to take control of Baghdad due to its urban sprawl. The same could have been said about Mosul, a city of 2 million. ISIS isn’t interested in a conventional battle with Iraq’s military. They want to sow unrest in Baghdad between all the religious groups. Car bombs and small attacks will be the norm from ISIS. That’s what they did in Mosul. It just wasn’t in the news until they took the city over.

Another reason for the lack of spiking gas prices is that the spike in oil prices just happened. The gas you’re pumping today was bought wholesale weeks ago. A prolonged spike in oil prices is needed to reflect a rise at the pump. Next month is when you’ll start seeing Iraqi violence reflected in the price you pay to fill up your car.

The longer this crisis goes on, the longer uncertainty surrounding Iraqi oil will persist. If Iraq’s military can get a handle on ISIS insurgents quickly, than crude oil prices will fall. Gas prices will fall in turn.

What you should do? Expect a rise in gas prices next month. How much depends on what continues to happen in Iraq. It’s unlikely gas prices will push towards $4 a gallon without the U.S. government taking steps to keep prices lower.