• 11 hours Iraq Begins To Rebuild Largest Refinery
  • 15 hours Canadian Producers Struggle To Find Transport Oil Cargo
  • 17 hours Venezuela’s PDVSA Makes $539M Interest Payments On Bonds
  • 18 hours China's CNPC Considers Taking Over South Pars Gas Field
  • 20 hours BP To Invest $200 Million In Solar
  • 21 hours Tesla Opens New Showroom In NYC
  • 22 hours Petrobras CEO Hints At New Partner In Oil-Rich Campos Basin
  • 24 hours Venezuela Sells Oil Refinery Stake To Cuba
  • 1 day Tesla Is “Headed For A Brick Wall”
  • 1 day Norwegian Pension Fund Set to Divest From Oil Sands and Coal Ventures
  • 2 days IEA: “2018 Might Not Be Quite So Happy For OPEC Producers”
  • 2 days Goldman Bullish On Oil Markets
  • 2 days OPEC Member Nigeria To Issue Africa’s First Sovereign Green Bond
  • 2 days Nigeria To Spend $1B Of Oil Money Fighting Boko Haram
  • 2 days Syria Aims To Begin Offshore Gas Exploration In 2019
  • 2 days Australian Watchdog Blocks BP Fuel Station Acquisition
  • 2 days Colombia Boosts Oil & Gas Investment
  • 2 days Environmentalists Rev Up Anti-Keystone XL Angst Amongst Landowners
  • 3 days Venezuelan Default Swap Bonds At 19.25 Cents On The Dollar
  • 3 days Aramco On The Hunt For IPO Global Coordinators
  • 3 days ADNOC Distribution Jumps 16% At Market Debut In UAE
  • 3 days India Feels the Pinch As Oil Prices Rise
  • 3 days Aramco Announces $40 Billion Investment Program
  • 3 days Top Insurer Axa To Exit Oil Sands
  • 4 days API Reports Huge Crude Draw
  • 4 days Venezuela “Can’t Even Write A Check For $21.5M Dollars.”
  • 4 days EIA Lowers 2018 Oil Demand Growth Estimates By 40,000 Bpd
  • 4 days Trump Set To Open Atlantic Coast To Oil, Gas Drilling
  • 4 days Norway’s Oil And Gas Investment To Drop For Fourth Consecutive Year
  • 4 days Saudis Plan To Hike Gasoline Prices By 80% In January
  • 4 days Exxon To Start Reporting On Climate Change Effect
  • 4 days US Geological Survey To Reevaluate Bakken Oil Reserves
  • 5 days Brazil Cuts Local Content Requirements to Attract Oil Investors
  • 5 days Forties Pipeline Could Remain Shuttered For Weeks
  • 5 days Desjardins Ends Energy Loan Moratorium
  • 5 days ADNOC Distribution IPO Valuation Could Be Lesson For Aramco
  • 5 days Russia May Turn To Cryptocurrencies For Oil Trade
  • 5 days Iraq-Iran Oil Swap Deal To Run For 1 Year
  • 7 days Venezuelan Crude Exports To U.S. Fall To 15-year Lows
  • 8 days Mexico Blames Brazil For Failing Auction

Breaking News:

Iraq Begins To Rebuild Largest Refinery

Alt Text

Is The Oil Glut Set To Return?

Yet another bearish report from…

Alt Text

IEA Dashes Bullish Sentiment In Oil

Inventories have been falling and…

Alt Text

Huge WTI-Brent Spread Boosts U.S. Crude Exports

The extreme gap between WTI…

Iraq On The Brink Of Chaos As Oil Revenues Fall

Iraq On The Brink Of Chaos As Oil Revenues Fall

During a sombre visit to Germany last week, Iraqi Prime Minister Haider al-Abadi urged the international community to help boost his country's crisis economy in the face of plummeting crude oil prices, underscoring a desperate situation in which Iraq has lost 85 percent of its oil revenues.

Iraqi oil revenues have fallen to just 15 percent of what they used to be, the embattled prime minister said, despite a boost in production ordered last year.

The surge in production has failed to compensate for the collapse of oil prices, and the situation is dire when oil revenues constitute around 43 percent of Iraq’s gross domestic product (GDP), 99 percent of its exports and 90 percent of all federal revenues.

All told for this year, the Iraqi government expects to export 3.6 million barrels of oil per day (bopd).

Only last October, Iraq’s oil revenues were holding at about $40 billion, excluding the cost of oil production.

This has prompted the Al Abadi government to announce strict austerity measures across institutions, including significant salary cuts for middle-class government employees. Protest rallies were held against delayed salaries, which later turned violent in some parts of Iraq, including the Kurdistan region. Related: Why Is Well Decommissioning So Slow In Canada?

Under these circumstances, one must question the legitimacy of the deal Baghdad has now offered to the Iraqi Kurds.

Earlier this week, Baghdad extended an offer to pay the salaries of the KRG’s public employees in return for a halting of unilateral oil exports by the Kurds. Both sides need this deal. The KRG is struggling to pay salaries, and protests are mounting—threatening the stability of what was not long ago the only peaceful and secure place in all of Iraq.

But most significantly, both Baghdad and the KRG need to ensure that the Kurdish Peshmerga fighting forces are being paid, because this is the key bulwark against further Islamic State (ISIS) advancements in the disputed territories of northern Iraq, around Mosul and oil-rich Kirkuk.

The Iraqi Kurds have accepted the deal, but they don’t really believe it will happen. Baghdad has consistently failed to make good on deals, and with its oil coffers depleted, it’s unclear how the central Iraqi government can afford this.

Al Abadi’s government inherited Iraq’s civil war-ravaged sluggish economy back in September 2014 and set out to try to consolidate the administration, which was bursting at the seams with a massive budget deficit, inherent bureaucratic corruption and the ongoing war burden with ISIS. Related: Oil Rally Stalls After Iran Declines to Commit to Freeze

So with low oil prices depleting revenues, Baghdad finds itself in an uphill struggle to fund the war against ISIS, which continues to control over 10 percent of Iraq’s oil fields, including those in the Nineveh governorate. ISIS hasn’t gotten anywhere near the oil-rich area of Basra—where the serious exports are—but Basra has its own problems, which are being compounded under the multiple pressures.

All the talk of potential independence—founded on unilateral oil flows—for Iraqi Kurdistan has lent more impetus for calls for more control over oil wealth management and distribution in Basra. And Shi’ite tribal clashes are raging in Basra, far too close to the main oil installations, prompting Baghdad to divert security forces there—away from the ISIS battle.

The situation in Basra will likely intensify, too, with growing protests over the central government’s imposition of a higher customs tariff as of 18 January. Profit margins are threatened, and there will be a backlash in a province where autonomy sentiments are already running high.

The country has been losing up to 400,000 barrels of oil per day because of ISIS advances—even after recapturing a couple of oil refineries like Bajii in the Saladin Governorate, north of Baghdad, from ISIS in October last year. Related: Activist Investors Crushed By Oil Crash

All eyes are now on the giant Majnoon oil field in Basra, in the south, which is considered to be one the richest oil fields in the world, with an estimated 38 billion barrels of oil reserves. Majnoon has approximately 13 different oil and gas reservoirs, but this area, too, is now becoming a flashpoint of unrest and tribal clashes.

As such, the deal brought up earlier this week by Saudi Arabia, Russia, Venezuela and Qatar to freeze oil output to January levels will not likely see the light of day. It requires the same commitment by Iran—which is not keen—and Iraq, which is hesitant to join in.

In January, Iraqi production hit a record high, averaging 4.775 million barrels per day. January exports averaged 3.9 million bpd. But with oil prices averaging right now under or around $30 per barrel, these production figures won’t help. Iraqi oil is going for about $22 per barrel. That’s half of what it needs to be to meet budgetary requirements.

Nowhere are the stakes higher than in Iraq, and selling oil at half the price it would take to just break even could break this giant’s back. It certainly isn’t enough to stave off the unrest in Basra, not to mention the ISIS threat.

By Charles Kennedy Of Oilprice.com

More Top Reads From Oilprice.com:

Back to homepage

Leave a comment
  • Jnewsted on February 21 2016 said:
    Pretty funny that the current glut is basically equal to the production increase Iraq has done since the end of 2014. How many new oil targets did they create with their greed trying to sell as much oil as they could in an oversupplied market? Enjoy the fruits of your labour alone Iraq, good luck.
  • mike on February 22 2016 said:
    Iraq is the victim of massive internal corruption, the US legacy. Now they are forced to deal with that corruption, so it's good. And the people are making that message very clear. I fully expect a few elected officials will in time be found hanging from lamp posts. The people of Iraq need to take back their government. I expect some violence, it's deserved and will be an important lesson for their leadership as the people demand their democracy work.

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News