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Iraqis are heading to the polls this Saturday to elect their next government, which is most likely to be a coalition—a change that could see delays in new oil projects and infrastructure plans for the industry.
S&P Platts cites sources from international oil companies as saying a new government could delay project approvals, including the awarding of licenses under the latest tender that was held in late April.
Plans for expanding the country’s oil production capacity could also be affected by the change of government, including the South Integrated Project managed by Exxon and PetroChina, which would be instrumental in allowing Iraq to boost production to 8 million bpd in the future.
Refinery construction and export capacity expansion are two more areas that could see delays or changes if the government switches hands: the current government has offered investors new refinery construction projects with a combined capacity of 1 million bpd of crude, but only one such project has been awarded, to Kurdistan company Ranya International. The refinery will process 70,000 bpd.
Besides delays in project approvals, if the new government—whoever that may be—fails to tackle the most pressing problems of the country that just emerged from its years-long battle with the Islamic State, it might descend back into chaos and violence, which will have major implications for all industries, not just oil.
Related: Oil Markets Tremble On Iran, Israel Flare-Up
CNBC reports that the incumbent PM, Haider al-Abadi, is the most likely winner of the Saturday vote, but there is much stiffer competition than there was four years ago. The number of parties running for election is this year is nine, versus just four in 2014. What’s more, Al-Abadi will be competing with former PM, Nuri al Maliki, who still carries a lot of weight in Iraqi political life.
Iraq is OPEC’s second-largest oil producer, so any political shifts in the country will have a direct and palpable effect on oil prices. The risk for prices becomes greater because of the likelihood of a coalition rule—coalitions are invariably much shakier constructs than majority governments, regardless of the country.
By Irina Slav for Oilprice.com
Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.