Dubai — Iraq is a "potentially vulnerable" oil supplier and heightened security concerns about OPEC's second-biggest crude producer could make it more difficult to ensure sufficient spare production capacity, the International Energy Agency said on Thursday.
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"Recent events have shown that Iraq is a potentially vulnerable supplier, just as its strategic importance has grown," the Paris-based agency said in its monthly report. "Today, both China and India receive about 1 million b/d of oil from Iraq and another 1 million b/d moves to various European countries. In India's case, around 20% of its crude imports come from Iraq."
Refiners in the US consumed about 300,000 of Iraqi oil in January-October, the IEA said.
With its exports doubling to 4 million b/d today since 2010, Iraq's importance has risen, particularly in light of sanctions on OPEC members Iran and Venezuela, the IEA said.
"In the medium term, heightened security concerns might make it more difficult for Iraq to build production capacity," it said. "In turn, this could make it more difficult to ensure there is sufficient spare production capacity to meet rising global demand in the second half of this decade."
Security concerns in Iraq have come to the fore following US killing of top Iranian commander in Baghdad earlier this month, prompting retaliatory attacks from Iran on US troops stationed in the country.
These attacks have stoked investor fears of disruption to oil supplies from the Middle East region and helped push oil prices this month to above $70/b for the first time since September. Brent has since retreated, hovering above $64/b.
Iraq pumped 4.59 million b/d in December, down from 4.65 million b/d in November, but still above its 4.51 million b/d quota under the previous OPEC + pact, IEA figures showed on Thursday.
Iraq flouted its OPEC oil cut commitments for most of last year, which was exacerbated by protests that targeted oil facilities in the fourth quarter of 2019. Under the new OPEC+ pact, Iraq will have to trim production by another 50,000 b/d.
Iraq's oil production is steady at 4.46 million b/d in line with its OPEC+ quota and exports are averaging 3.45 million b/d, an oil ministry spokesperson said last week.
Both exports and production have not been impacted by recent events in Iraq, he said.
Iraqi exports are either shipped through Turkey's Ceyhan port on the Mediterranean, where some 400,000 b/d are transported, with the rest going through the Persian Gulf, the IEA said.
This increases supply risks because importers, especially from Asia, get their crude though the Gulf's strategic Strait of Hormuz, where around 20% of global oil supply including crude and condensate is transported to the world.
Security concerns have also prompted international oil companies such as ExxonMobil to withdraw American staff from the country after a US government advisory. Other oil majors may think twice about investing in Iraq, where nearly 63% of oil output was produced by IOCs in 2019, according to Rystad Energy.
BP, for example, was expected to ramp up production and boost its water injection program to become the third largest producer in Iraq, but the fate of this program is now uncertain, according to Rystad.
"Continued tensions in the region could see BP slow their water injection program down, and limit the high-side of production for the company and for other international players in southern Iraq," Matthew Fitzsimmons, vice president of oil field research at Rystad, said in the report. BP wasn't immediately available to comment.