Turkey and its decades-long fight with Kurdish separatists boiled over into the energy markets this week, sending world crude-oil futures to record highs.
Neither the Turks nor the rebel Kurdistan Workers Party (PKK) own any oil.
But the PKK's stepped up attacks on Turkey and Turkey's threat to unilaterally strike back at their bases across the border in Iraq could shut a key pipeline that runs from the giant landlocked Kirkuk oil field in Kurdish northern Iraq to the port of Ceyhan on Turkey's Mediterranean coast.
Given the extensive sabotage and vandalism unleashed on Iraq's oil industry following the U.S.-led invasion in 2003, the pipeline is one of the few corridors through which Iraq can access the world market to raise badly-needed cash to rebuild its economy. Which makes it a frequent target in a region already rife with violence and warring factions.
The 600-mile pipeline's vulnerability is well known. Few barrels of crude have trickled through it over the past four years. Prior to that, it was idled by international trade embargoes aimed at cutting off the flow of petrodollars Saddam Hussein relied on to fund his regime.
Efforts to resume shipments through the line didn't bear much fruit until this past summer, when Iraq convinced the likes of Exxon Mobil Corp. that they could again accommodate routine tanker loadings.
So far, Iraq has lined up contracts to supply about 300,000 barrels of oil per day to tankers calling at Ceyhan, a move that would lift Iraqi oil exports by about 15% from its current 2 million barrels per day. Currently, most of that oil flows to market through the predominantly Shiite port of Basra in southern Iraq.
Baghdad, alarmed at Turkey's threatened incursion and its possible closure of the Kirkuk-Ceyhan pipeline, dispatched Vice President Tareq Hashemi to Ankara to dissuade the Turks from a breach of sovereignty.
But Turkey, citing the deaths of over a dozen of its soldiers in less than two weeks at the hand of what it calls PKK terrorists and the Iraqis' inability to stop the carnage, is digging in.
The Ankara government has long viewed efforts by the Kurds to establish an independent homeland a serious threat to regional stability.
"We can understand Turkey's anger but what I'm aiming to achieve during my visit is a common understanding," Hashemi said before the talks, the BBC reported.
The White House has also weighed in, issuing a statement Monday asking Turkey to refrain from military action in the interest of avoiding further violence.
It's a precarious situation for the United States as well, since most supplies for U.S. troops in Iraq and Afghanistan enter the region through airbases in Turkey and the U.S. can ill-afford further destabilization in the region.
All of this translates into heightened tensions and an even higher risk premium in oil prices.
Evidence of this was obvious Tuesday in the trading pits of New York, where crude oil for November delivery closed at an all-time high of $87.61 a barrel.