The conflict in Iraq has created a threat to future oil production that could drive up prices, the developed countries’ energy watchdog has warned.

Fatih Birol, chief economist of the Paris-based International Energy Agency, said the rise of the Islamic State of Iraq and the Levant, or Isis, was causing the agency to reassess its expectations of crude supplies because the Islamist group was deterring investment in production.

Speaking to the Financial Times in New York, Mr Birol said instability in the Middle East, and especially in Iraq, had “major implications” for oil markets.

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