London — Iraq has made a comeback to the global oil stage after the defeat of Islamic State militants and the restoration of stability, with its crude production surging to all-time highs in recent months.
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But the success to which it has rebuilt its vital oil industry has placed it at odds with its fellow members of OPEC, which is in the third year of collective production cuts aimed at boosting prices.
Iraq has consistently flouted its quota under the cut agreements, despite repeated naming and shaming by other OPEC countries, including de facto leader Saudi Arabia, and is sure to receive another scolding when the producer bloc meets Monday in Vienna.
Oil minister Thamir al-Ghadhban, however, is pleading with his OPEC counterparts for understanding. His message to the group, as it gathers to decide whether to extend its current round of supply cuts beyond June, is that Iraq needs the money it gains from oil sales, with a fragile economy and a restive population eager to see the benefits after years of war.
"There is so much demand for revenues of oil that constitute more than 90% of the Iraqi government [budget]," Ghadbhan said at an Iraq oil investment conference in London on Thursday. "There is so much pressure from the Iraqi people to provide benefits, jobs, needs for infrastructure, schools, and so on."
Iraq pumped a record 4.82 million b/d in May, compared with 4.43 million b/d in May 2017, according to the latest S&P Global Platts survey of OPEC production. That is far in excess of its quota of 4.51 million b/d under the supply cut agreement.
Despite the low level of compliance, Ghadhban said Iraq supported prolonging the cuts, and that so far, the agreement has not been effective enough. He called for a rollover of the agreement at the same cut levels, if not deeper.
Supporting an extension benefits Iraq, since it's more likely to lead to higher prices. But continuing to pump at higher than agreed levels also guarantees it can rake in as much in revenue as possible.
"When it comes to compliance, the economy can't afford to, and if Saudi can keep taking the deeper cut, that suits Iraqi interests," Niamh McBurney, lead Iraq analyst at Verisk Maplecroft, told Platts. "Iraq cannot afford to cut and then lose market share, and then the price goes up by $5/b and then it goes back down by $8/b and they're in a worse position."
Iranian sanctions have complicated the OPEC supply picture. Iraq insists it is not replacing Iranian barrels, but nonetheless, many of the end-users for both of the countries are the same - namely located in Asia.
McBurney suggested that Iraq may get somewhat of a pass from OPEC, since it plays a key role in filling the supply gap from a loss in Iranian output, preventing a potential price spike.
Saudi Arabia and Iraq have also been working on developing political relations, which had fallen by the wayside over the past 10 years for a multitude of reasons, including Iraq's closer relationship fellow Shia majority Iran, the main geopolitical rival of Sunni-dominant Saudi Arabia.
"Our relations with the Saudis have improved tremendously and we have recognized that this is very vital for the security of Iraq," Prime Minister Barham Salih told Chatham House delegates on Tuesday.
Contractual obligations also prevent the extent to which Iraq can institute cuts. Earlier in the year, Iraq saw higher levels of compliance in March and April, but many of the supply reductions came from Basra Oil Company-run fields, protecting international oil companies working in the country from volume reductions.
Iraq's relations with IOCs are more important than ever, since it will need continued investment over the coming years.
Though there have been vast improvement, there remain security issues in Iraq. US major ExxonMobil has reacted to a perceived increased threat level through the removal of some of its staff at its operations in Basra.
In mid-June, a rocket attack struck a site operated by the state-owned Iraqi Drilling Co., but no production facilities were affected. Nonetheless, Iraq's newfound stability means increased bullishness on investment into the country.
The most recent Iraq report from the International Energy Agency released in April this year touted that Iraq could boost its production to 6 million b/d by 2030.
But this is contingent on the country's ability to maintain a high level of security, attract investment, and secure adequate water supply for oil injection.
Delegates at the CWC Iraq Petroleum Conference in London, where Ghadhban and several other Iraqi oil officials spoke, were optimistic about the country's prospects - a change from previous years, in which security concerns and the daunting task of rebuilding oil infrastructure dominated.
--Miriam Malek, email@example.com
--Edited by Paul Hickin, firstname.lastname@example.org