Calls were made for Iraq to ramp up its oil production after OPEC refused to increase its output in line with the United States and International Energy Agency requests. As Iraq’s oil exports reach record highs, the potential for further growth is evident. Investments in the country’s energy infrastructure could make Iraq a bigger global player in the oil industry as countries around the globe search for new oil and gas partners. Iraq was pressured to increase its oil output last week, according to Oil Minister Ihsan Abdul Jabbar. Jabbar stated that Iraq would supply oil to help lessen the impact of shortages being felt worldwide. Meanwhile, OPEC is sticking to its original plan to raise output across its member states by 432,000-bpd in May.
Iraq holds approximately 145 billion barrels of oil, making it the fifth-largest oil state in the world. With production levels of around 4.4 million bpd, Iraq could help move away from dependence on Russian oil if it can increase its output. It’s currently exporting most of its crude to China, India, Turkey, South Korea, and the U.S. While India has turned to Russia for its cheap oil exports in recent weeks, Iraq is maintaining its role as a major oil exporter to India.
And Iraq’s oil trade looks positive as it announced its highest exports for 50 years in March, at a value of $11.07 billion. Exports rose in response to fears of shortages, as sanctions were imposed on the purchase of Russian oil. Countries around the globe are looking for alternative oil and gas partners to ensure they have enough oil as well as to halt the rapid increase in oil prices. Although it has decreased slightly over the past month, the Brent Benchmark is still very high, at almost $109 a barrel. Greater output could help alleviate some of the pressures felt by rising energy prices at a time when the global economy is still recovering from the Covid pandemic.
However, Iraq’s Deputy Prime Minister Ali Allawi stated that it would be sticking to OPEC plans for output, explaining “It’s unlikely that we can export more, but we can certainly substitute for imports of oil byproducts and gas.” Allawi also said, Iraq is "basically a follower and does not set policy in Opec". But, Opec has been "a successful cartel" and it would be "rather foolish to pull out from a successful cartel", he stated.
With oil revenues contributing around 90 percent of Iraq’s income, this could be a time for Iraq to be strategic in its immediate and mid-term plans for its energy sector. Ironically, Iraq still imports much of its energy needs, buying natural gas from Iran to meet its electricity needs. It also purchases many of its refined oil products as it does not have a well-established refining industry. The country experiences regular power cuts and requires significant investment in its infrastructure to improve its energy security.
But while Iraq states its commitment to OPEC as the main reason for not increasing its crude output, this may not be the only cause. Iraq has previously failed to meet OPEC production quotas, falling 130,000 bpd short of its target in March. Although Iraq’s oil fields have the capacity to pump over 5 million bpd of crude, poor storage and export facilities mean that it is unable to meet this output level.
Major bottlenecks in Iraq’s oil infrastructure mean that the quantity of the oil that the country exports is limited. Further, regular issues across the country’s oil fields often have an impact on production levels. While the West Qurna 2 field resumed production two weeks early following maintenance, protests halted output at the Nassiriya field in April. In addition, Iraq is attempting to increase oil exports from its Gulf terminals in the south, but several delays to infrastructure developments have made this impossible.
Most recently, the Iraqi government halted work on the development of the 1 million bpd crude export pipeline from Iraq to Aqaba in Jordan. It has decided, instead, to wait until the next government is formed to take any further action on the project. The oil ministry stated, “The project is still under technical study and neither has it been awarded nor has a contract with any party been concluded.”
Three months prior, the Jordanian government had shown optimism over getting the project underway. But with the government formation process facing constant delays, there is no telling how long Jordan will have to wait to see progress on the pipeline project. If it goes ahead, the pipeline is expected to cost around $8.5 billion. But no clear financing plan has been established by either country.
Iraq is currently seeing huge potential for the growth of its oil industry, as countries around the world look to it to fill the gap left by Russia. An increase in its exports could help boost its economy substantially. However, its ongoing commitment to OPEC, coupled with severe underinvestment in the country’s energy infrastructure, makes an increase in output and export levels of crude unlikely.
By Felicity Bradstock for Oilprice.com
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