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Iraqi Kurds May Reject Oil Cuts, Putting Baghdad In Difficult Position

Ashti Hawrami

Authorities of the Kurdistan Regional Government (KRG) in northern Iraq have announced that they will most likely not take part in the recently agreed oil output reduction deal made by OPEC, making the Iraqi central government’s ability to meet the cartel’s production cut requirements difficult.

Iraq is OPEC’s second-biggest producer, and had heavily lobbied for an exemption from the production freeze, along with its neighbor, Iran.

On November 30th, OPEC reached a deal among all 14 member countries to curtail oil production for the first time since 2008. In accordance with this deal, the cartel has agreed to cut its oil production from 33.8 million barrels a day (b/d) to 32.5 million b/d in an effort to prop up prices. Iran succeeded in getting a bump to 3.797 million bpd, but Iraq was asked to cut down to 4.35 million bpd, down from 4.561 million bpd in October, based on secondary sources.

Late last month, just days after OPEC decided on the cut, Iraq released detailed data about the crude oil output at each of its 26 oilfields, along with detailed export figures, all of which was meant to serve as evidence that OPEC’s external-source output estimates do not reflect reality.

The Iraqi data also included total output from fields in Iraqi Kurdistan.

Related: Will We See $60 Oil By Christmas?

According to these figures, in September, the country pumped 4.7 million bpd, compared to 4.47 million bpd based on OPEC’s secondary sources for that month.

To make good on the OPEC deal, Iraq must reduce crude output by 210,000 barrels a day from October levels. Kurdistan controls about 600,000 barrels a day of oil production, or approximately 12 percent of Iraq’s total output.

Based on a statement by KRG Minister for Natural Resources, Ashti Hawrami, while the Kurds are signaling that they may not take part in the cut, they have also not definitively ruled out cooperation.

Due to the divisive oil-sector relationship between the KRG and Baghdad, Iraq’s central government is not in a position to order the KRG to reduce output. As the situation stands, companies operating in the KRG have given every indication that they are planning to increase oil production early next year by 40,000 barrels a day.

That leaves Federal Iraq holding the bag to shoulder the cuts. Only most of Iraq’s oil production is contractually obligated under international oil company agreements.

(Click to enlarge)

According to the Bloomberg chart, which comes from Iraqi and Kurdish oil ministry data, only 550,000 barrels per day is free and clear from oil company obligations or Kurdish oversight.

And asking the international oil companies to cut production would require Iraq to pay a curtailment fee, according to Iraq’s oil minister. That means the required cut of 210,000 barrels per day would likely come from the 550,000 barrels per day that it has under its control.

By Julianne Geiger for Oilprice.com

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  • Bond, James on December 09 2016 said:
    Iraqi Kurdistan and the puppet Kurds must stop taken orders from the US-Zionist
    conspirators, because very soon the Russians will be coming to liberate all of Iraq from
    US international terrorist alliance which includes Israel and the Kurdish Peshmerga.
    Time is running out for the Kurds and US.

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