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Charles Kennedy

Charles Kennedy

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Baghdad Asks Kurdistan To Cut Oil Production

The federal Iraqi government has asked the Kurdistan Regional Government to reduce oil production by 120,000 bpd, Reuters reported, citing the Iraqi News Agency.

The federal government is negotiating several scenarios for production cuts with the KGR, the report went on to say, as the northern semi-autonomous region produces a sizeable chunk of Iraq’s total oil output and needs to participate in the country’s compensatory cuts, necessitated by its earlier failure to stay within its production quota under the OPEC+ production cut agreement.

As of April this year, Kurdistan was exporting about half a million barrels of crude oil daily. After OPEC+ struck an agreement to cut production by 9.7 million bpd, Iraqi’s then-oil minister Thamer al-Ghadhban said that Kurdistan will also take part in the cuts.

Baghdad and Erbil are currently also negotiating a new budget deal for the semi-autonomous region.

Iraq is OPEC’s second-largest crude oil producer and as such, was required to cut one of the largest portions of national oil outputs under the April deal. However, the country surprised no one by failing to cut production as much as it had promised, prompting Saudi Arabia, OPEC’s de facto leader, to put its foot down and threaten Baghdad with punitive action if it continued to produce over quota.

As a result, at the June meeting of OPEC, Iraq and the other laggard, Nigeria, agreed to deepen their production cuts to compensate for overproduction in May and June while other OPEC+ members, notably Saudi Arabia, relaxed their cuts beginning in July.

OPEC produced 24.27 million bpd of crude in August, the latest monthly data showed. This was 950,000 bpd higher than the July average. Meanwhile, Iraq had undertaken to add another 400,000 bpd to its August cuts. Based on the current talks with Erbil, some of these additional cuts need to come from Kurdistan.

By Charles Kennedy for Oilprice.com

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