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Encyclopedia of the oil crash: I is for interest rates

…and International Energy Agency, Islamic State. View this and more in our encyclopedia of the oil crash


 

OIL_25

INTEREST RATES


The Bank of Canada’s rate cut caught everyone by surprise. The vast majority of economists figured the bank would leave its target for the overnight rate unchanged at one per cent, where it had been stuck since the fall of 2010, while a rare few foresaw a rate hike. Now a consensus is emerging that the Bank’s next move will be to cut rates even further, as slumping oil drags down the economy. The move is a big gamble on the part of Governor Stephen Poloz, who hopes the rate cut will both spur companies to spend and help fend off low inflation, but the risk is that Canada’s already over-indebted households will put themselves in even more danger by taking on excessive leverage. At least Poloz doesn’t have to listen to people complain that he’d left rates unchanged for too long. Jason Kirby

INTERNATIONAL ENERGY AGENCY


A Paris-based intergovernmental organization, the IEA was established during the 1973 oil shocks and was charged with coordinating international responses to global oil crises, including the release of strategic reserves. These days, it’s mostly preoccupied with keeping energy statistics and making market forecasts, although that doesn’t mean it has any less power to influence the market. Back in September, the IEA trimmed its market forecast because of weakness in Europe and China, calling the slowdown in demand “nothing short of remarkable.” Oil prices plunged. Chris Sorensen

 

ISLAMIC STATE


The jihadist group calling itself Islamic State devotes considerable effort to living up to its name—specifically, the “state” part of it.

In a November profile, Charles Lister, a visiting fellow at the Brookings Doha Center, says the group is highly bureaucratic and has developed multiple income streams to fund its various projects. These funding sources include oil, gas, agriculture, extortion and kidnapping. By last fall, Lister estimates, Islamic State was earning some $2 million a day, making it the richest terrorist group in the world. The contrast with the early Taliban, whose bank consisted of two tin trunks stuffed with Afghan and American currency, is striking.

Islamic State gets money from oil, both crude and refined, by selling it on the black market to smugglers, who transport it, usually by truck, to surrounding countries. Oil is likely the revenue stream Islamic State values most. It’s been trying to retake the Iraqi town of Baiji, home to the country’s largest oil refinery, since losing it in November. “Their unrelenting attacks show how important oil is in their strategy,” says Valérie Marcel, an associate fellow at the London think tank Chatham House.

Saul Loeb/Bloomberg/Getty Images

Denying Islamic State access to oil has also been key to Iraqi and Western military efforts against the group. Air strikes have targeted Islamic State mobile refineries that are small and simple enough to be moved by truck. They’ve also hit smugglers’ tankers. This has reduced Islamic State’s income from oil.

A global drop in oil prices has likely diminished Islamic State’s export revenues. But it always sold its product at a steep discount anyway, and the group has adapted, says Marcel. Now, Islamic State uses much of what it produces internally. Its military vehicles need fuel, and so do the six to eight million people living on territory it controls. Marcel says there are also reports Islamic State trades some oil on a barter system, exchanging crude for gasoline through intermediaries that also deal with the Syrian regime of Bashar al-Assad. Michael Petrou (Photo: Saul Loeb/Bloomberg/Getty Images)

NEXT:


  • OIL_26
    J is for jobs, June 20, 2014
  • OIL_28
    K is for Keystone XL
  • OIL_30
    L is for Lac-Mégantic, layoffs, Leduc 1, loonie

 

 


 

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