The bigger oil story behind the headlines

James Stafford: In our last interview with you, you discussed "outsized disruptions" of the oil market focusing tightly on the Middle East. Over the past couple of months, nothing could be truer. With the Islamic State (IS) now in control of a large swathe of land bridging Syria and Iraq, fighting for control of a key Iraqi refinery for domestic consumption and arguably in control of all of Syria's relevant oilfields, how outsized do you expect the disruptions to be in the coming weeks and months, keeping in mind that so far the crisis has not begun to affect Iraqi oil exports?

Michael Levi: To understand impacts in the coming weeks, you want to talk to an expert on Iraq and on Kurdistan. I think the big question looming over all this is the long-run impact.

Most forecasts that foresee $100-ish oil prices definitely assume that a significant part of delivering that comes from Iraq, and if the political and security situations aren't conducive to substantially more investments that part isn't there. That's why you're seeing the more distant oil prices perk up by more than near term ones, because people are concerned about this long-term ability to deliver.

James Stafford: Who has been benefiting the most from Iraqi oil?

Michael Levi: Look, the big oil consumers benefit from Iraqi oil regardless of whether they actually import oil from Iraq.

I think one of the big fallacies in people's thinking about the Iraqi oil sector has been the focus on who's making money producing the oil. The bigger impact is on consumers. It's not clear to me that the Chinese make money producing Iraqi oil, at least as producers; but as consumers--to the extent that Iraqi oil production holds world prices down--the Chinese, the United States, and also some other countries benefit.

On a numbers basis it wouldn't surprise me if Jordan benefits enormously, not because of their economic relationship, but because Jordan spends so much money on oil imports. Anything that keeps production up and holds prices down is good for Jordan. I mean that's the way you think about it, not just in terms of who's getting the chance to make $2 a barrel producing the stuff.

James Stafford: Back in the US, how do you perceive the EPA's new carbon emission regulations for power plants? Are the targets realistic?

Michael Levi: There's no question that these targets can be met. The EPA has gone out of its way to propose targets that can be achieved without people needing to be particularly creative.

The implementation will be very interesting to watch. I think a lot will depend on the decisions that individual states make about implementation. If you have a patchwork of different approaches you could see some perverse outcomes.

As a general matter the EPA seems to be trying to have achievable targets and to have as much flexibility under existing law as can possibly be given to the states that have to comply. You still shouldn't ignore the fact that comprehensive national legislation would be more efficient than using this authority for something that it wasn't designed for. But, within the confines of the law, they're trying to create as much of that flexibility as they can.

James Stafford: A number of analysts are suggesting that the EPA's proposed regulations could help revive nuclear energy. Do you see this happening?