Oil prices rise, shares slide as Iraq violence escalates
STOCK markets in Europe fell to 10pc below recent highs and oil prices spiked to $107 a barrel after US President Barack Obama authorised air strikes against militants in Iraq.
The escalation in Iraq is accelerating a market retreat that began with concerns over the crises in Ukraine and Israel.
The Euro Stoxx 50 Index of euro area shares is down as much as 10pc from its high on June 19.
"The correction is a wake-up call," Ros Price, chief investment strategist at Seven Investment Management, said.
"Yes, it is true that markets have weathered lots of risks, but people are rightly becoming worried now. We're being assaulted on all sides. You have to wonder whether the recovery since 2009 has peaked. I think there's a good chance that maybe it has."
Yesterday's prices mean European shares have now suffered two consecutive weeks of decline for the first time since March and gains made earlier in the year have been wiped out.
The US decision to bomb Islamic State (IS) militants in Iraq sent oil prices higher.
Brent crude pared gains to trade below $106 on Friday, having been up more than $1 after the United States approved air strikes. Brent prices had spiked above $115 in mid-June on fears that violence in Iraq would disrupt oil supplies from the OPEC member.
Iraq is OPEC's second-largest producer.
"The market will look very closely at what happens next and whether oil supplies from southern Iraq could be under threat," said Tetsu Emori, a commodity fund manager at Astmax.
The bulk of Iraq's oil is produced in the south, removed from the current fighting in the north of the country.
In Kurdistan, producer Afren suspended output at its small Barda Rash oilfield, but Genel Energy said its Taq Taq and Tawke oilfields continued producing and averaged 230,000 bpd this week.
Ireland's Petrel Resources said last week that no exploration is being conducted at present at the Amira prospect in Iraq, where it has a 20pc interest.
PVM Oil Associates Managing Director David Hufton said a loss of oil production from the Kurdish region would not affect the market.
"Should IS make advances south towards Basrah, it would be a very different matter," he added. (Additional reporting Bloomberg)