Few news items can rile markets more than conflict erupting in oil-supplying countries. Libya had markets on edge last year, affecting both oil and stocks. When Russia's military merely approached Crimea in Ukraine earlier this year, markets got nervous. When conflict erupted in northern Iraq last month, oil prices spiked and stock markets took notice as well.

This week, Iraq was in focus again, but this time because a drop in production there had less of an impact on the world's oil supply than previously feared. Oil fell, the Dow Jones Industrial Average (DJINDICES:^DJI) stayed near its highs, and ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX) both fell.

^DJI Chart

^DJI data by YCharts

The truth is that over the long term, supply concerns often blow over and short-term movements are often unjustified. So just how concerned should we be with these potential conflicts?

The world's leading exporters
To understand how conflict could affect oil and therefore the economy, it's important to understand where the world's oil comes from. In 2012, the most recent date for which we have data from the Energy Information Administration, Saudi Arabia was the world's No. 1 producer, followed by the U.S. and Russia. Together, these three countries produced 37% of the 89.4 million barrels per day consumed globally.

Of the countries that have seen recent military or political conflicts either at home or in their region, few are big enough to make a big dent in global supply. Saudi Arabia is clearly the largest exporter of oil, followed by Russia, but places such as Iraq, Iran, and Libya are fairly small by comparison.


Net Exports in 2012 (Thousand Barrels Per Day)

Saudi Arabia




United Arab Emirates










Source: Energy Information Administration.

To put these numbers into further context, since 2005 the U.S. has reduced oil consumption by 2,022 thousand barrels per day, increased production by 4,835 thousand barrels per day, and reduced net imports by 6,857 thousand barrels per day. So while conflicts that emerge in Iraq, Iran, or any other oil-exporting country may have an impact on the global energy market, they're not going to bring the economy to its knees.  

The impact on markets
For companies, the impact may be greater. ExxonMobil has operations in nearly every oil-producing country, and a $500 billion joint venture with Russia's Rosneft was part of a political battle earlier this year. The company also has production sharing contracts that cover more than 848,000 acres of the Kurdistan region of Iraq, precisely where conflict is the worst today.

Chevron's dealings in Northern Iraq have also been contentious. The company signed oil contracts with the Kurdistan regional government that give it access to 490 square miles in two separate blocks. But Baghdad says the deals were illegal and barred the company from dealings with the central government.

While the impact on the Dow Jones Industrial Average as a whole may be small, these conflicts can affect earnings of companies as big as ExxonMobil and Chevron. Just keep in mind the scale of the potential impact when these countries hit the headlines. The impact is often not as big as the media makes it appear.