government is soying no tolerance, they must leave. >> all right, got you. and that is all the time for this news hour, thank you for being with us, inside story is next, on al jazeera america. >> will that send shivers through the world market? it's the inside story.

the vast grounds has been the scene of the sunni guerillas. or isil. both military forces and the sunni militias fighting them have claimed the refinery during the fighting, and the black flag of the isil forces has been seen flying inside the facility. the refinery is just 130 miles from baghdad. supply as lot of the fuel for electric power, in the western provinces near syria, and the northern ones by the kurdish lands in turkey. and the vulnerability of one of the world's major oil suppliers. world with crude prices have moved higher as the problems have deetenned.

could do to the oil business. sunni insurgents led by iraq, continue to press their fight against the iraqi government and bear down on baghdad. oil is becoming a key prize on the battlefield. the government has been fighting insurgents at the country's largest refinery, 130 miles north of the capitol. the fight has been going on for days. there were reports insurgents held the facility for a time on wednesday, and early thursday, but the government now says it is in control. facility remains shut down, when i.s.i.l. overran mosul, the second largest city, it cut off the important oil city from the government, fighters from the iraqi kurdish militia rushed in and took over the city and controlled today.

i have been waiting for 6:00 a.m. for 30 litters. this is an unacceptable situation. ala does not accept this, only 30 leaders in iraq? the great country of oil. >> iraqi dudderrish stan is the semiaton mouse region. it controls important oil resources. the government is threatening increasing government over the objections of the government. iraq has the fifth large nest the world, and in 2012, it surpassed iran to become the second largest in op exk, the organization of petroleum exporting countries. who buys iraq's oil?

china is the number one with customer. china's remains silence in public, but has reason to worry. the crisis in iraq threatens not only supply lines but also china's billions of dollars in oil infrastructure investment. all the moving pieces in iraq. and it's oil fields, eventually work its way into the world supply chain, and makes it to you at the much. aaa reports gas prices in the united states this week, averaged $3.68 as gallon. that's the highest price in six years. uncertainty over iraq isisming higher, and for now you can expect that upward pressure to continue. what the battle of far away iraq means to the much prices in battle creek michigan. this time on the program,

b actionji took 300,000-barrel as day out of circulation, and most of it was for domestic consumption. will the world marketplace for petroleum perceive greater risk and start pricing accordingly? that's our focus. joining us for that conversation, from bloomington indiana the former iraqi ambassador to the united nations, in our washington studio, director of the atlantic council's energy program. and in london, lua visiting fellow at the brookings doha center. in general, when a country goes off line, as libya did, what happens first? first you see prices go up.

you may not notice actual disruptions in the supply. but the spare capacity in the oil market is very very small. so taking off the supplies of an entire country, off line, like we with have seen, will actually cause instability, and insecurity which obviously drives prices up. >> why don't other countries simply open their tap as little wider, making the supply roughly level. >> well, this is an market in a way, meaning that you can't just make up for the missing production. overnight. they are reaching that capacity of how much they can produce in a year, and they are willing to be the garn tour of that flexibility, but they also have limitations in terms of physical infrastructure, and production rates that they have to abide by. >> we mentioned this was mostly oil that was being used domestically, that

this was not a dagger at the heart of the iraqi oil industry. but if problems continue, will we start to see a risk premium on iraqi oil, and a lack of confidence in the ability to fulfill it's contracts. >> well, the -- the price hike at the moment, it's baseless, basically. the incidents that are taking around the refinery, all though significant, and impacting on the supplies to the domestic requirements, to meet local services, but when it comes to international markets it has nothing to do with these hikes. it is just traders worried speculation, or sometime playing the market to secure a short gains. the production centers the main super giant

production of iraq is in the south. and they are intact, and they will continue to be intacts. the export terminals are intact, and safe. they are far from the fault lines. as i said, when it comes to the impact on this refinery, it is surely impacting the level of services, and the supplies domestically, effecting the basically, causing more disconfident to the consumers and forcing the government to import more products rather than using it's own local resources. but when it comes to international prices as i said, it will only be effected for the producing fields are to be effected and this is not the case which i

don't think is going to be the case. >> does the level headed and no doubt correct case, that lua just made, and then there's the same traders going home from the offices and the telephones and the computer screens, and turning on a television and seeing a guerilla army less nan 125 miles away from baghdad. isn't that part of two political and the military strategy behind this? we are having problems with the ambassador's satellite signal. same question. >> i am glad in a way you are able to tush to me, because it is true. from a real oil flow point of view, there is no reason for oil prices to go up. however, there is the

psychological, the perceived risks. that taking over a refineries such as the one we with have just seen. sends to the market place, and foreign policy makers as well as energy minister throughout the world. the idea that we with can ignore security risks until they actually cause physical disruptions is not a sustainable path. that we with can conduct, even our markets on. >> mr. ambassador, we have had problems with your signal, it looks pretty good -- well. it looks good for the moment -- >> i can hear, you anyway. >> a reaction to what you have been hear. >> i agree with with the last speaker, i think there is a huge impact of seeing the iraqi forces collapse and heading south towards baghdad. i agree that it is unlikely that the

insurgence -- his signal has frozen again, with he take a short break, first we will see if we can fix the satellite signal, and we will continue our conversation on iraq, and it's place in the international oil scene. this is inside story, stay with us.

welcome back to inside

story. when there's disruption in one with country supply, do other oil ex-porters fry to much and ship more to take advantage? if more iraqi oil shipments are interrupted, nor the dureds take over more capacity in the north, will there be shortages of rises. that's our focus, and unfortunately our technical problems with the ambassador in bloomington indiana were insurmountable, so we will not be able to bring his mart of the interview to you today. seven until the isil militant insurgency really started to grab more territory, they came roaring out of syria, and heading east across iraq, before that, was the iraqi oil industry in pretty good shape? and a pretty reliable supplier of crude?

>> before we with touch on the oil, i would like to mention 1 point. the insurgencies that we mentioned, led by i.s.i.l.s. it is a conflict within conflict. it may have been unified under one banner, but it include as number of groups, including former regime, including groups of sue insurgencies. but they have -- and of course, the subgroups having said that. may all agree to create that sense of fear to be unified under one banner one umbrella, and basically create that momentum on the ground, and of course, think been financing and supporting by much more sophisticated logistics.

and that is -- literally outweighed the super powers in the world to basically control significant territories. now back to the oil market, not only impact from this situation in term oz if short term, but also safe in temples of the fact that it enjoys spare capacities by the major producer. saudi arabia enjoy as sparety in terms of iraq oil production, is increasing by the day, and the international oil companies are have continued their production plans uninterrupted. and as we witnessed over the past 2 1/2 years production having freezed with with at least 900 to

one with million battles per day. and it is to be increased further by another 400,000 by end of the year of next year. and this is mostly from the south super giant fields. which is very much heavily guarded and protected by the local content, by the security, and by the realities and the facts oen the ground. so in terms of like the short term, i don't see any threat, and whatever hikes that we witness withed is very much an unnecessary reaction from the traders or just prosecuting short term gains. in terms of like the longer outlook and also,

there is a burden on the international community to really fake into consideration how to handle the situation, because we with are talking about a region -- >> let me take it from you, and bring it back, because terrorism is part of the calculist, that the world oil market does around delivering product to refineries and then delivering refined product to final markets. when there have been wars like this? the past. some of these groups have financed this by selling oil and gas. it's a fairly sophisticated infrastructure for moving product around. if these guys take enough of iraq over, will they be able to sell what they are sitting on top of? >> i don't see how they will make an economic gain out of their current

actions happen they may be able to supply their own needs and supplies, the small jail in which they could sell it's not going to turn this into a money making opportunity. unless we see them taking over the entire country and becoming the legitimate government. >> in other cases, we have seen the capacity resume. the gorilla army, the injure sensy, the regional problems. in places like west africa, in places like angola. eventually, it ends. >> yep. >> the majors come back in. do prices come down, or are they stickier on the down side. >> sometimes they are stickier, but you have to look at more than just the risks caused by terrorists. what kind of supply, how much supply. we have seen market

report, and north american, is going to produce an unprecedented levels, and obviously that effects global markets. knew will our demand impact the price of oil. so it isn't just terrorists. usually they are stickier, and we are figuring out why it is stickier on the way down, but it is not just about terrorism. one quick point, that the previous speaker made, mrs. no current risk of corruption in the short term, how, even the i.d.i. cautions on tuesday that if iraq the second largest prodaughter cannot meet the demand -- the production growth expected, out of it we are not going to be able to meet global demand. there are risks on the

horizon, even if as you suggest, and it is true, it would be very difficult for these irregular armies to mount an attack on the fields in the south. we with the only see in risk if the entire subgroups will basically take over the whole country. if that happens we will not be talking about a failed state in iraq, we will be talking about a failed middle east. at the moment, it is under heavy control and production from the local, the local content, and as far from the fault lines and even in the knot, it is all the producing assets, is now under the control of the

kurdish i.s.i.s. penetration into these assets it could be only to the refineries. even this is in not in the hand off at the moment. we have heard today that the government has sustained the security of the refinery by sending air drops to enforce local securities within the refinery. so it is not accurate in away, that it was under attack by minirockets or something like that, but it was not impacted significantly. with regards to the middle east in general, and the international oil

companies involvement, and investment, this needs to be taken seriously. we are talking about a region that holds 60% of global reserves. and for long term outlook, the international community should be obliged of protecting the interests in the middle east to sustain the continue fighter of the energy supplies uninterrupted, undisrupted, and also because this is at the end of the day, sustaining the global economy. any disruption will eventually effect outlook as a long term outlook rather than short term. >> we are going to take a short break, and when we come back, we will pick it up. china has made a significant investment into iraq's national oil company. through it's own what's the danger to china's investment at this point? this is inside story, stay with us.

iraq's melt down, irocky oil this year on the program. when senior officials were being held in front of congressional committees it was predicted iraq's oil reserves would pay for the reconstruction of the country. looking over the last ten years that wasn't p necessarily true. the american taxpayer ended up paying trillions but what about the next ten years? visiting fellow at the brooks doha center, and director of the iraq energy institute. he advise it is parliament, has oil been a reliable donor into iraq's efforts and

redevelopment? has the country been banking on oil for it's future? absolutely. the oil really is the -- it is the bread and butter for iraq. as you may know, iraq is a renting company, it and will continue for some time before terrifying it's economic portfolio. and for this, the upstream development is a necessity to sustain the progress of iraq. and any major development in the future will rely on oil production to bail out any financial liabilities. iraq needs around 1.5 trillion u.s. dollars to meet it's requirement for the reconstruction

campaign. and the only way to pay this bill is from the oil revenues, and subject to proper management, and good policies, and the implementation of a federal constitution. of course. and this is quite vital. not only the oil development, but also the development of the gas sector, and other infrastructure that's related to the energy sector. >> they say that with every 10-dollar blare, it shaves about half a percentage point off the world's g.d.p. for that year, the the world economy. from just this kind of shock? >> it is not necessarily the next year or the next go years. it is the next five years. will the demand that will have five years from now, be met by the expected

increases in production from iraq? if that will not happen, and global demand is relying on iraq, than unfortunately we will see an economic slow down. when we have seen 2008 and on wards what high oil prices do, and how they do not help economic recovery or growth. so this is a symbol. what is going on right now, it is a symbol, it is opportunity for us to assess the path we are on, and whether or not we will meet our targets five to ten years from now, both economic growth, as well as iraq's own economic targets. >> now, there's wider disruption in that part of the world, syria is a major trance shipment point, and that must be up for grabs right now. is this just a jittery time in the oil market. >> it is a jittery time. and it's -- what is interesting is you have a part of the world, where all the events taking place right now in the

middle east, make your jittery, and then you have other parts of the world, like north american, even latin america, the who knows if things calm down in russia, maybe even russia, where you would see tremendous increases. so it is we shouldn't base our conclusions on just one area. in the world. thank you very much for joining us. that brings us to the end of this edition, thank you for being with with us, join us next time from washington. ray swarez.

>> we're here at the darrington unit, which is a maximum security prison on the outskirts of texas. >> jimarquez holland is 20 years old. he's been imprisoned here for three years. >> to me, i feel like what i was doing was petty. petty crimes - i never thought in a million years that i would be 17 and in prison. never thought.