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Wed 18 Jun 2014 09:47 AM

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Live updates: Battle for Iraq

Latest: Saudi Arabia foreign minister says situation in Iraq "carries with it the signs of civil war whose implications for the region we cannot fathom.”

Live updates: Battle for Iraq

Welcome to our live updates on the crisis in Iraq – we will try and wrap up all the relevant business and political news in the coming hours. Click to the next page for background information on the conflict.

1:00pm / June 18: Reuters is reporting that Sunni militants have broken into the Baiji refinery and are in control of the production units, administration building and four watch towers. We suspect all this will impact oil prices and stock indices in the region. Unrelated but also likely to impact stocks is the breaking news that Arabtec’s CEO has quit – Arabtec had already been dragging down the Dubai index all week after a pretty farcical few days. We will be filing that story separately shortly.

12.20pm / June 18: Saudi Arabia’s foreign minister Prince Saud Al Faisal has also been speaking, to a gathering of leaders in Jeddah. And he paints a pretty grim picture, saying: “This grave situation that is storming Iraq carries with it the signs of civil war whose implications for the region we cannot fathom.”

It is worth noting in the context of his remarks our earlier story, in which Iraq’s PM put the blame firmly on Saudi Arabia for supporting the Sunni militants, saying: “We hold them responsible for supporting these groups financially and morally and for its outcome - which includes crimes that may qualify as genocide: the spilling of Iraqi blood, the destruction of Iraqi state institutions and historic and religious sites."

With the US propping up the Iraqi government and likely to send in the jets to help out, but also seeing Saudi Arabia as its biggest ally in the region, you can see how this is all starting to get very complex and very dangerous for the region.

11.50am / June 18: Brent crude held above $113 per barrel on Wednesday as heavy fighting in Iraq shut the country's biggest refinery and led to the withdrawal of staff by foreign oil firms, stoking worries about exports from the key oil producer, Reuters reports. Some oil companies are pulling foreign staff from Iraq, fearing Islamic militants from the north could strike at major oilfields concentrated in the south despite moves by the Baghdad government to tighten security.

"Exports haven't been affected yet, so the price gain we've seen so far is only on speculation that things might deteriorate further and instability will spread to the south of Iraq," said Ben Le Brun, a markets analyst at OptionsXpress in Sydney.

"But as soon as we hear about production affected, then we will start to see the price move up more dramatically. But it's very hard to put a figure on this," said Le Brun. "In a worst case scenario, Brent could go above $120 at a minimum."

Brent lost 14 cents to $113.31 a barrel by 0653 GMT, after settling 51 cents higher. U.S. crude gained 17 cents to $106.53 a barrel after it ended 54 cents lower. The US July contract expires on Friday.

Worries about disruption to Iraq's supply drove up both benchmarks by more than 4 percent last week, the biggest weekly jump since July for Brent and since December for U.S. crude.

Iraq's biggest oil refinery, Baiji, has been shut down and its foreign staff evacuated, although refinery officials said local staff remain in place and the military is in control of the facility.

Iraqi officials say the southern regions that produce some 90 percent of the country's oil are completely safe from ISIL, which has seized much of the north in a week as Baghdad's forces there collapsed.

But the International Energy Agency (IEA) said Iraq's oil output target of 4 million barrels per day by the end of the year looks increasingly at risk, just as demand is picking up due to a stronger global economy.

11.35am / June 18: Iran’s president Hassan Rouhani has turned up the heat on ISIS, saying “many people are ready to go to Iraq to defend Holy sites and put the terrorist in their place.” We’ll bring you more of his remarks when we get them. The prospect of the US and Iranian forces joining together to take on ISIS looks to be fading, but it does look increasingly like the US (with drone strikes) and Iraq (with soldiers on the ground) will be on the same side for once, battling ISIS.

11.10am / June 18: More on the refinery attack, which as we feared could become quite significant. We understand that ISIS entered the area at 3am Dubai time from two of the three main entrances. Reuters reports that heavy fighting is now underway with smoke seen coming from the main building and warehouse. Production was actually halted yesterday and foreigners evacuated as ISIS closed in, but the refinery was, at least yesterday, under Iraqi government control. Given it can process 300,000 barrels a day and supplies oil to most of Iraq, including Baghdad, this could be a huge strategic victory for ISIS if it takes control. It would, quite literally, bring the capital to a standstill.

10.40am / June 18: We’re hearing that militants have struck Iraq’s Baiji refinery with mortars and machine gun fire. Baiji is around 130 miles north of Baghdad and on the main road to Mosul. It is a huge industrial centre and quite significant because it also has the largest oil refinery in the country. Those of you with a long memory will recall this is where many Brits were held as human shields during the first Gulf War in 1990. More importantly, if ISIS are about to take control of this, the already dire economic state of Iraq is about to get even worse.

...background information on next page

10:30am / June 18: Reuters is reporting that the Indian government has not been able to make contact with 40 Indian construction workers in the Iraqi city of Mosul, with one leading Indian newspaper reporting that they have been kidnapped. Foreign Ministry spokesman Syed Akbaruddin said dozens of Indian workers were living in areas overrun by the Islamic State of Iraq and Syria (ISIS). India is in contact with many of them, including 46 nurses, and has sent a senior envoy to Baghdad to support repatriation efforts. "There are also reports which have been brought to the notice of our embassy that there are 40 Indian nationals in Mosul. Despite our best efforts at this stage, we haven't been able to contact them. So they remain uncontactable at this stage," Akbaruddin said.

10:00am / June 18: Well worth keeping an eye out on regional stock markets, which appear to have been hit by the crisis in Iraq. If you tried to plot a graph of the DFM index in the past month, well good luck. On 21 May it was just over 4809, crossing to a peak close to 5151 by 3 June. It has dropped spectacularly since, now standing at 4468. Some of that is of course down to the fiasco over Arabtec’s share price, which started to recover slightly yesterday. But most experts are predicting continued volatility. We’ll keep you updated as the day progresses (though it has just opened up 0.36 percent up as I write this, so maybe a good sign..)

9:45am / June 18: Background information from Reuters: Iraqi Prime Minister Nuri Al Maliki broadcast a joint appeal for national unity on Tuesday with bitter Sunni critics of his Shi'ite-led government - a move that may help him win US help against rampant Islamists threatening Baghdad.

Just hours after Maliki's Shi'ite allies had angrily vowed to boycott any cooperation with the biggest Sunni party and his government had accused Sunni neighbour Saudi Arabia of backing "genocide", the premier's visibly uncomfortable televised appearance may reflect US impatience with its Baghdad protege.

In a rerun of previous failed efforts at bridging sectarian and ethnic divisions, Shi'ite, Sunni and Kurdish leaders met behind closed doors and then stood frostily before cameras as Maliki's Shi'ite predecessor Ibrahim Al Jaafari read a statement denouncing "terrorist powers" and supporting Iraqi sovereignty.

US President Barack Obama is considering military options to push back Al Qaeda splinter group the Islamic State of Iraq and the Levant (ISIL), which has swept the Sunni north of the country over the past week as the Shi'ite-led army has crumbled.

But in return Washington want Maliki to do more to address the widespread sense of political exclusion among minority Sunnis which ISIL has exploited to win support among tribal leaders and former followers of ousted dictator Saddam Hussein.

"No terrorist powers represent any sect or religion," Jaafari said in the address, which included a broad promise of "reviewing the previous course" of Iraqi politics. Afterwards, most of the leaders, including Maliki and Usama Al Nujaifi, the leading Sunni present, walked away from each other in silence.

Earlier, Maliki's government accused Saudi Arabia, the main Sunni power, of backing ISIL - something Riyadh denies.

"We hold them responsible for supporting these groups financially and morally and for its outcome - which includes crimes that may qualify as genocide: the spilling of Iraqi blood, the destruction of Iraqi state institutions and historic and religious sites," a government statement said.

...background information continued on next page

Maliki has blamed Saudi Arabia for supporting militants in the past, but the language was unprecedented. On Monday, Riyadh blamed sectarianism in Baghdad for fuelling the violence.

Maliki, who has been buoyed by a call by Iraq's senior Shi'ite cleric for citizens to rally to the armed forces, dismissed four generals for abandoning the big northern city of Mosul a week ago and said they would face court martial.

Scores were killed on Tuesday in a battle for another provincial capital, close to Baghdad, and fighting shut Iraq's biggest refinery at Baiji, hitting fuel and power supplies.

Government forces said they repelled an overnight attempt by insurgents to seize Baquba, capital of Diyala. Some residents and officials said scores of prisoners from the local jail were killed. There were conflicting accounts of how they had died.

ISIL fighters who aim to build a Muslim caliphate across the Iraqi-Syrian frontier launched their revolt by seizing Mosul and swept through the Tigris valley towards Baghdad.

The fighters, who consider all Shi'ites to be heretics deserving death, pride themselves on their brutality and have boasted of massacring hundreds of troops who surrendered.

Western countries, including the United States, have urged Maliki to reach out to Sunnis to rebuild national unity as the only way of preventing the disintegration of Iraq.

"There is a real risk of further sectarian violence on a massive scale, within Iraq and beyond its borders," UN Secretary-General Ban Ki-moon said. "I have been urging Iraqi government leaders including Prime Minister Al Maliki to reach out for an inclusive dialogue and solution of this issue."

But the prime minister, in power for eight years and effective winner of a parliamentary election two months ago, seems instead to be relying more heavily than ever on his own sect, who form a majority long oppressed under Saddam.

Though the joint statement late on Tuesday said only those directly employed by the Iraqi state should bear arms, thousands of Shi'ite militiamen have been mobilised to defend Baghdad.

The sudden advance by Sunni insurgents has the potential to scramble alliances in the Middle East, with the United States and Iran both saying they could cooperate against a common enemy, all but unprecedented since the 1979 Iranian revolution.

Iran, the leading Shi'ite power, has close ties to Maliki and the Shi'ite parties that have won elections since US forces toppled Saddam in 2003. Although both Washington and Tehran are allies of Baghdad, they have not cooperated in the past but diplomats discussed Iraq briefly on Monday in Vienna.

Obama, under fire at home by critics who say he did too little to shore up Iraq since withdrawing US troops in 2011, is considering options including air strikes. He has sent a small number of extra marines to guard the US embassy but has ruled out redeploying troops following their 2011 withdrawal.

Obama has invited Congressional leaders to talks at the White House on Wednesday as he considers his options in Iraq.

Iraqi officials confirmed that the Baiji refinery north of Baghdad had shut down, although they said government troops still held the vast compound. Foreign workers were evacuated by Iraqi government helicopters.

...background information continued on next page

With the refinery shut, Iraq will have difficulty generating electricity and pumping water to sustain its cities in summer. There were already reports of queues for fuel in the north. One official with the Iraqi oil ministry said that northern and western Iraq would be hardest hit, while Baghdad would be less affected due to a refinery on its southern edge.

During the US occupation, the refinery stayed open, and the threat to it shows how much more vulnerable Iraq is now to insurgents than it was before Washington pulled out troops.

Tens of thousands of Shi'ites have rallied at volunteer centres in recent days, answering a call by the top Shi'ite cleric to defend the nation. Many recruits are now in training.

But with the million-strong regular army abandoning ground despite being armed and trained by the United States at a cost of $25bn, the government is increasingly relying for its own preservation on various Shi'ite militias, many of which operated during the death squad bloodletting of 2006-07.

According to one Shi'ite Islamist working in the government, well-trained organisations Asaib Ahl Haq, Khataeb Hezbollah and the Badr Organisation are now being deployed alongside Iraqi military units as the main combat force.

Baghdad is on edge. Sunnis worry about convoys of civilian cars with bearded men in military uniform they assume are militiamen, while Shi'ites living in Sunni districts, are moving away, worried that a new round of civil war is unfolding.

Two attacks hit Shi'ite markets in Baghdad Tuesday, a suicide bomber and a car bomb. The two attacks left 18 dead and 52 wounded, according to medical and security sources.

The Sunni militants have moved at lightning speed, slicing through northern and central Iraq, capturing the towns of Hawija and Tikrit in the north before facing resistance in southern Salahaddin province, where there is a large Shi'ite population.

The battle lines are now formalising, with the insurgents held at bay about an hour's drive north of Baghdad and just on the capital's outskirts to the west, beyond the airport.

Militants also attacked a town near the northern oil hub of Kirkuk that is inhabited by Shi'ite ethnic Turkmen. The fighting went back and forth and appeared a preview of the challenges the Kurds now facing having rolled into Kirkuk last week after the Iraqi army abandoned positions. A local official from said 5,000 Turkmen had fled. By nightfall, ethnic Kurdish fighters had cleared most of the town but militants still held some ground.

In a further sign of ethnic and sectarian polarisation, Maliki allies have accused the Kurds of colluding with Sunnis to dislodge government forces in the north.

The mainly Turkmen city of Tal Afar, west of Mosul, fell to Sunni militants on Sunday, and the Iraqi military said it was sending reinforcements. The army said it killed a top militant named Abu Abdul Rahman Al Muhajir in clashes in Mosul.

But security officials seemed pessimistic. One warned: "There is no clear strategy for the Iraqi government to retake Mosul. And without the US and international community support, the Iraqi government will never retake Mosul."