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ISIS: From Egyptian Goddess to Iraqi Devil

30/06/2014 12:53 BST | Updated 26/08/2014 10:59 BST

What's in a name? Isis used to be an Egyptian goddess. The ideal mother and wife; patroness of nature and magic. Now ISIS refers to brutal violence, extremism, and war. Will the Islamist movement cause oil prices to explode?

Oil, oil, oil

Oil prices have risen by several dollars because of ISIS' - which now refer to itself as The Islamic State - rampage. Yet, prices have quieted down. According to technical analysts it would not come as a complete surprise if oil prices were to break out. In any case, a correction is due in the financial markets. Soaring energy prices could be the straw that breaks the camel's back.

Iraq has become a vital link in the oil market - the country passed Iran as the second-largest crude-oil producer in OPEC at the end of 2012. In addition, it has the fifth largest proven crude oil reserves in the world. But it remains to be seen if the ISIS fighters can (and will) trigger a market switch through higher oil prices.

Hype or unstoppable force?

Professor Henri J. Barkey stated that "ISIS represents the ultimate in radicalization." Its actions are so violent that even al-Qaeda's leader has dissociated himself from ISIS.

Estimates vary when it comes to the scope of the organization., between 6,000-20,000 fighters. Whatever its actual size, ISIS has managed to capture large portions of Iraq. The group already wields considerable power in Syria. Its aim is to control a continuous territory across the borders of the two states with as final goal to establish a Islamic caliphate, based on strict sharia law, in the areas currently occupied by Lebanon, Syria, and Iraq. Over the weekend ISIS has already declared the areas it occupies in Iraq and Syria as a new Islamic state.

ISIS slowed down

Just 1-2 weeks ago the Jihadists appeared unstoppable. Now they encounter increasing resistance. For a number of reasons, we think the "ISIS hype" is unlikely to cause oil prices to explode.

• The federal government may lack legitimacy and authority but it still has a large apparatus of government (armed forces, a well-established bureaucracy), money, and allies such as the US and Iran. The latter two seem prepared to work together - at least behind the scenes - to help put a stop to ISIS' advance.

• moderate Sunni groups are increasingly inclined to side with Bagdad (as happened previously, during the Sunni or Anbar Awakening). Moreover, Iran, which is Shiite dominated, is an ally of PM Maliki (who for many years was an exile in Tehran and Damascus). Iran has funded his party for most of its existence. Tehran has already sent members of the elite troops of the Republican Guards to Iraq.

• The major players - Iran, Turkey, Saudi Arabia, and the US - want nothing to do (any longer) with ISIS. A handful of Gulf princes with individual agendas and ambitions that diverge from those of their states seem to be the movement's only real supporters.

• ISIS is supported by a makeshift coalition, which many experts expect to fall apart in due course. On one side we see an unlikely association between Baghdad, Sunni factions that balk at ISIS' radical extremism, Iran, and to some extent Kurdish fighters, the US, and Turkey. Still stranger and perhaps even more opportunistic is the alignment of ISIS, other Islamic insurgents, Ba'athists who used to serve under Saddam Hussein, and various tribal factions.

• ISIS speedy push has taken everyone by surprise. Even the best intelligence agencies did not have a clue. After such a rough awakening, the fighters have lost the element of surprise that allowed them to make big gains.

• If ISIS wants to press forward, it will encounter stronger army units. The fleeing troops were relatively weak and often unwilling to fight for Sunnis (the Iraqi army is largely Shiite). ISIS will think twice before launching a large-scale incursion into the Kurdish territory in North-Eastern Iraq. The Kurdistan Peshmerga forces are effective and well-trained. Moreover, the Kurds outnumber ISIS having 190,000 troops. If it continues to push south, towards Baghdad and beyond, ISIS will enter parts of Iraq with a Shiite majority (65% of the Iraqis are Shiite). As the jihadist group looks to expand geographically, it will have to fight harder to make headway.

• In the past year, Syrian President Assad has managed to deliver hard blows to the opposition. If Assad gains the upper hand in the Syrian civil war, ISIS could be forced to send more fighters to the Syrian battlegrounds.

• Iraq's largest oil fields are in the South. In February, the Iraqi oil industry was producing 3.6 million barrels per day - the highest level since 1979 - of which 2.5 million were exported via the Persian Gulf. In all likelihood, these exports can continue as ISIS would have to spread itself too thinly and cross hostile terrain to reach the infrastructure. The other major oil fields are situated in the Kurdish areas. As we have already explained, the Kurdish army is strong.

Rearranged geopolitical chessboard

ISIS' advance in the near future will probably be less spectacular than last week's events would suggest. The oil market appears to take the same view; in the past few days, prices did not move much.

In the medium to long term, the Iraq crisis could have far-reaching geopolitical consequences, to the detriment of the markets. The country could break up in three. A southern part that is dominated by Iran and Baghdad, an independent Kurdish region, and an area north of Baghdad dominated by ISIS and other Sunni extremists. Such a failed state (in an unstable region) will have repercussions that resonate far beyond the borders. Eventually, the geopolitical chessboard could look radically different. If so, there will be intense volatility in the oil markets. And probably elsewhere, as well.