Oil Traders Might Be Missing The Seriousness Of The Latest Iraq Developments

Today, Iraq declared a state of emergency following the occupation of Mosul, the largest city in Iraq's oil-rich northern region, by one of the country's nastiest terror groups.

Oil markets are shrugging off the crisis: Brent contracts were down 0.4% Tuesday.

Usually when supplies are threatened, the price goes up.

Baghdad released a statement saying the state of emergency would not affect exports, according to TradeArabia. And while the takeover occurred in the north, much of the country's production since the end of the war has occurred in the south.

However, shipments out of Kirkuk, 100 miles southeast of Mosul, have already been halted after a March bomb blast damaged a pipeline to Turkey. The IEA warned in its May 15 report that northern exports remained threatened by an unstable security situation.

Two FT commentators believe the market is inadequately pricing how ominous the ISIS take over is:

Iraq production is now near post-war highs of more than 3 million barrels a day. But exports [represented in bars] have recently been falling.