New York: Oil rose to a two-week high as Iraq government troops clashed with Kurdish forces, signalling the potential for supply disruptions.

Futures rose as much as 1.8% in New York.

Iraqi soldiers seized facilities including a refinery after mobilizing late Sunday to take oil fields near the northern city of Kirkuk from Kurdish forces. Their advance comes amid clashes following an independence referendum by the semi-autonomous Kurdistan Regional Government, or KRG, on 25 September.

Iraqi Kurds have halted oil output at two areas in Kirkuk due to the conflict, according to a NOC official.

“The reports out of Iraq are the driving force," Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by telephone. The potential for a loss of supply from the region is on investors’ minds and “it is undoubted that the market psychology is affected."

Iraqi forces advancing in the province said they’ve captured a refinery, a gas plant and other facilities, state-run Iraqiya television reported.

“The Kurdistan tension is the main argument for the price gain," said Bjarne Schieldrop, chief commodities analyst at SEB AB in Oslo. “The fact that the market now has started to react to geopolitical risks like this is clearly a reflection of an oil market with less abundance of oil."

WTI for November delivery gained 61 cents to $52.06 a barrel at 10:06am on the New York Mercantile Exchange. Total volume traded was about 12% above the 100-day average.

Brent for December settlement added 82 cents to $57.99 a barrel on the London-based ICE Futures Europe exchange. The global benchmark traded at a premium of $5.65 to West Texas Intermediate for the same month.

Iraq is the second-largest producer in the Organization of Petroleum Exporting Countries, and pumps most of its 4.47 million barrels a day from fields in the south, shipping it from the Persian Gulf port of Basrah. The country’s Kurdish region, meanwhile, relies on a pipeline to the Turkish port of Ceyhan to get most of its crude to market. The conduit also transports some 100,000 barrels a day from federal-run fields in Kirkuk.

At immediate risk is around 120,000 barrels a day of oil produced by the KRG from fields claimed by Baghdad, according to Bloomberg oil strategist Julian Lee. About 60,000 barrels a day is still produced by the Baghdad-controlled North Oil Company and exported through a Kurdish pipeline. If Turkey were to close the pipeline—which runs to an export terminal on its Mediterranean coast—the disruption could be much bigger. Bloomberg

Ramsey Al-Rikabi, Tsuyoshi Inajima, Heesu Lee and Grant Smith contributed to this story.

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