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Islamic State's inability to provide essential services in these areas will likely cause its downfall, especially if the new Iraqi government can demonstrate greater inclusiveness of Sunni interests. But the battle is not yet won. Baghdad’s hand will be weakened if it must cut back on public spending in response to sustained low oil prices (its breakeven price is $109 a barrel).

IS will likely live on in the form of multiple cells across the region. The greatest danger therein for the oil sector will be in potential attacks against oil facilities in the GCC and Algeria. Beyond the potential supply disruption, any such attack would deal a blow to these states’ legitimacy. Especially those in the throes of political succession.

While King Salman of Saudi Arabia quickly asserted his intention to maintain the policies of his predecessor, Abdullah, uncertainties remain about the potential impact this succession —  and especially the next one — could have on the management of the petroleum sector. Until now, a trusting, arms’ length relationship existed between the ruler, the oil minister and Saudi Aramco, the state-owned oil company. The prospect of a double succession, involving both oil minister Ali Al-Naimi and King Salman, can change that balance.

The current oil policy, which aims to recoup market share, is a dramatic departure from the long-established policy of stabilizing markets. The Naimi-Abdullah duo had rallied to the view increasingly held in Riyadh that Saudi Arabia should not bear the costs of a swing producer role. Continued political support of the new policy depends on how it impacts Saudi interests.

The decision not to intervene to could be interpreted internally as a political win, if it has a demonstrated impact on Iranian policy. Reduced export revenue will certainly hurt Iran. It has already tightened its belt under the constraints of years of sanctions, but certainly cuts could be made to its assistance of the Syrian regime. A complete Iranian withdrawal from Syria is unlikely however, as it has demonstrated unwavering commitment to its proxy in the Levant. The return of Iranian crude to the market may prompt the Kingdom to hurt Iranian interests by defending further its market share in Asia.

The outlook is unsettling. The security vacuum in Syria, Yemen, Iraq and Libya is being filled by groups which are able to control and operate some of the oil installations. And there is clear danger at the border for neighbouring states already under economic and political strain.

This article was originally published by Bloomberg.

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