Iraq says reports it wants OPEC oil cut exemption are phony

Dubai — Iraq's oil ministry late Sept. 2 denied reports in state media that the country would seek an exemption from its production quota under OPEC's supply accord with its allies, saying it remains committed to the deal in the interest of oil market stability.

The reports, published by state media outlets earlier in the morning, had quoted oil minister Ihsan Ismaael as saying Iraq would seek OPEC's permission to be exempt from crude export restrictions under the deal in 2021, though it would continue to adhere to its agreed cuts through the end of this year.

The OPEC+ accord, however, does not cover crude oil exports, but production. Iraq has previously tried to claim that the deal only applies to exports, drawing the ire of other members, who have criticized its habitual noncompliance.

In a statement, the Iraqi oil ministry called the reports "a false statement” attributed to Ismaael that it "would like to categorically deny.”

"To the contrary, Iraq remains fully committed to the April OPEC+ Declaration of Cooperation, and the compensation mechanism agreed to in June, and will continue to work with all of the other signatories in our collective efforts to enhance the stability of global petroleum markets,” the statement said.

It continued that Iraq's compliance with its quota was more than 100% in August and that the country would implement compensation cuts to offset its overproduction of 850,000 b/d from May-July. Though the compensation cuts are required to be fully made by the end of September, the statement said that it may ask OPEC for a two-month extension through the end of November if it is unable to meet the deadline.

FAMILIAR TACTIC

Iraq has been among the least compliant OPEC+ countries this year and has been under pressure from leading OPEC+ members, especially Saudi Arabia and Russia, to improve its performance, which has been complicated by financial constraints and an independent Kurdish oil policy. Ismaael was quoted in the reports as saying the semiautonomous Kurdish region had maintained its exports without consulting the federal government in Baghdad.

Iraq's August quota was 3.804 million b/d, excluding voluntary extra cuts to compensate for overproduction, which put Iraq's effective quota at 3.404 million b/d.

During summer months, Iraq needs to increase its crude oil output to produce associated gas that is required to feed into its power plants as residents crank up their air conditioners to cool temperatures that can top 50 C. The acute power shortage has led to protests, the most recent of which took place in July.

In the reports, Ismaael was quoted as saying Iraq had discussed its desire for an exemption with OPEC during three consecutive meetings.

Several delegates told S&P Global Platts that they had not heard any such discussions and that an exemption would be unlikely to be granted.

Iraq sought an exemption when the OPEC+ alliance was being negotiated in 2016, saying it could not afford to cut production after years of war against the Islamic State, but got no satisfaction from the rest of the coalition.

It would later claim that the cuts, which went into force in 2017, were only for exports, with domestic refining and power generation exempted; however the Declaration of Cooperation enshrining the OPEC+ alliance specifically states the deal covers production only.

Finance minister Al Allawi, who used to be acting oil minister, said in June that Iraq wants OPEC+ to take into consideration the economic and living conditions of countries when assigning quotas in oil production cuts.

Iraq is struggling to pay public salaries and finance its budget due to the sharp drop in oil prices this year amid the COVID-19 outbreak. The country's economy is forecast to contract nearly 10% in 2020, according to World Bank estimates, and it is seeking International Monetary Fund help to shore up its finances.

FALLING EXPORTS

Iraq's oil exports, excluding those from the semiautonomous Kurdish region, fell 6% in August from July, the oil ministry said Sept. 1, signaling tighter compliance with its OPEC+ quota.

Exports fell to 2.597 million b/d in August from 2.763 million b/d in July, the oil ministry said in a statement. Exports were only 2% lower in July than in May. The ministry did not publish production figures.

Iraq pumped 3.697 million b/d of crude in July, including Kurdish output, compared with 3.698 million b/d in June, according to figures from state oil marketing company SOMO. Iraq's quota was 3.592 million b/d in July.

Secondary sources used by OPEC to monitor production, including S&P Global Platts, had Iraq's production higher. Platts estimated July output at 3.77 million b/d, a 70,000 b/d month-on-month rise, for an 83% compliance rate with its agreed production cut.

Saudi energy minister Prince Abdulaziz has made quota compliance a top priority as co-chairman of a key OPEC+ monitoring committee with Russian energy minister Alexander Novak. The Joint Ministerial Monitoring Committee, which is convening monthly, is set to meet online Sept. 17.

(Recasts headline and lede to reflect new ministry statement, adds details.)