Iraq has been urged to increase its oil production after OPEC refused to increase production in line with demands from the United States and the International Energy Agency. With Iraqi oil exports hitting record highs, the potential for further growth is evident. Investing in the country’s energy infrastructure could make Iraq a bigger global player in the oil industry as countries around the world seek new oil and gas partners. According to Oil Minister Ihsan Abdul Jabbar, Iraq was pressured last week to increase its oil production. Jabbar explained that Iraq will supply oil to mitigate the effects of shortages being felt around the world. Meanwhile, OPEC is sticking to its original plan to increase production in its member states 432,000 bpd in May.
Iraq holds about 145 billion barrels of oilmaking it the fifth largest oil state in the world. With production levels hovering around 4.4 million bpd, Iraq could help break away from its dependency on Russian oil if it can increase production. It is currently exports most of its crude oil to China, India, Turkey, South Korea and the US 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 trading looks positive as he announced the highest exports in 50 years in March, valued at $11.07 billion. Exports surged in response to shortages as sanctions were imposed on purchases of Russian oil. Countries around the world are looking for alternative oil and gas partners to ensure they have enough oil and to stem the rapid rise in oil prices. Although slightly down over the past month, the Brent benchmark is still very high at almost all times $109 a barrel. Higher production could help ease some of the drag from rising energy prices at a time when the global economy is still recovering from the Covid pandemic.
However, Iraqi Deputy Prime Minister Ali Allawi said he would stick to OPEC’s stimulus plans. to explain “It’s unlikely we can export more, but we can certainly replace importing oil by-products and gas.” Allawi also said Iraq is “essentially a follower and doesn’t drive Opec’s policies.” But Opec was “a successful cartel” and it would be “pretty foolish to withdraw from a successful cartel,” he said.
With oil revenues accounting for around 90 percent of Iraqi income, this could be a time for Iraq to become strategic in its immediate and medium-term plans for its energy sector. Ironically, Iraq still imports much of its energy needs and buys 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 faces regular power outages and needs significant investment in its infrastructure to improve its energy security.
See also: Russia’s oil production has fallen by 10% since the start of the war in Ukraine
But while Iraq cites its commitment to OPEC as the main reason for not increasing its crude oil production, that may not be the only reason. Iraq has previously failed to meet OPEC production quotas, 130,000 bpd behind its target March. Although Iraqi oil fields have the capacity to pump over 5 million bpd of crude oil, poor storage and export facilities means it cannot reach that output level.
Major bottlenecks in Iraq’s oil infrastructure mean that the amount of oil the country exports is limited. In addition, regular problems in the country’s oil fields often affect the level of production. While the West Qurna 2 field resumed production two weeks early after maintenance, protests halted production at the Nassiriya field in April. In addition, Iraq is attempting to increase oil exports from its Gulf terminals in the south, but multiple infrastructure development delays have made this impossible.
Recently, the Iraqi government halted work on the development of the 1 million bpd crude oil export pipeline from Iraq to Aqaba in Jordan. Instead, it has decided to wait until the next government is formed before taking any further action on the project. The Oil Ministry specified“The project is still under technical review and has not been awarded or contracted with any party.”
Three months earlier, the Jordanian government had expressed optimism about getting the project off the ground. However, with the government-forming process constantly being delayed, 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 was drawn up by either country.
Iraq currently sees huge potential for its oil industry to grow as countries around the world hope to fill the gap left by Russia. An increase in its exports could help boost its economy significantly. However, its continued commitment to OPEC, coupled with significant underinvestment in the country’s energy infrastructure, makes an increase in crude oil production and export levels unlikely.
By Felicity Bradstock for Oilprice.com
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