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Can oil markets handle another Iraq violence spike?

As Iraqi security forces launch an offensive to recapture key cities reportedly taken by Al-Qaeda-linked militants in the western province of Anbar, oil traders appear to have taken the latest developments in their stride.

The fighting is concentrated in the cities of Fallujah and Ramadi, areas largely devoid of sizable oil fields and critical ancillary facilities. But they are still within a 60-mile radius of the capital Baghdad,and could put at risk Iraq's medium and long-term oil exporting objectives.

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An engineer at the Zubair oil field in southern IraqEssam-Al-Sudani | AFP | Getty Images

"Iraq has very ambitious medium-term growth targets for oil production, which might be impacted should the tensions continue, intensify or spread further to the oil-rich provinces," Eugen Weinberg, head of commodity research at Commerzbank, told CNBC.

On Monday, Iraqi Prime Minister Nouri Al Maliki called on residents of Fallujah to stand up to militants and help reinstate government control. Authorities carried out an airstrike on Ramadi on Sunday, killing 25 militants, according to local sources.

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"Any major violence would derail plans to increase capacity. Major infrastructure projects would continue, albeit at a slower pace," Shwan Ibrahim Taha, chairman of Rabee Securities, explained to CNBC.

Taha also pointed out that it was a different story in Iraqi Kurdistan, the semi-autonomous region in the north, where production was ahead of schedule.


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