Page 10 - MEOG Week 03

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Iraqi oil faces more challenges
Iraq
JUST as Iraq has increased its crude oil produc- tion and export capacity over the past decade, the recent flare-up of tensions in the Middle East suggest that OPEC’s second-largest oil producer could become a “vulnerable supplier,” the Inter- national Energy Agency (IEA) said in its January Oil Market Report.
Earlier this month, the US killed Iran’s most powerful and visible military leader, Qassem Soleimani, at Baghdad Airport. Retaliation from Iran came several days later, when Teh- ran fired missiles at bases in Iraq that host US troops, sending oil prices up by 4% for a few hours. “Recent events have shown that Iraq is a potentially vulnerable supplier, just as its strate- gic importance has grown,” the IEA said in its report last week.
Over the past decade, Iraq has doubled its crude oil exports. Back in 2010, Iraq was export- ing 2mn barrels per day, while now it ships 4mn bpd abroad, mostly through the world’s most important oil chokepoint, the Strait of hormuz, which lies partly in Iranian waters and which Iran has repeatedly threatened to close.
India and China are Iraq’s largest oil cus- tomers, buying 1mn bpd of Iraqi oil each, while Europe also receives some 1mn bpd. The US also buys oil from Iraq, with US imports averaging 337,000 bpd in January-October 2019, the IEA said, citing data from the US Energy Information Administration (EIA).
Currently, Iraq is pumping more than its quota under the OPEC+ production cut deal and has not complied with the agreement in any of the previous months or years. however, if Mid- dle East tensions persist for longer, Iraq may not be able to increase its production capacity in the medium term as it has planned, according to the IEA. “In the medium term heightened security concerns might make it more difficult for Iraq to build production capacity. 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,” the
agency said.
Oil supplies from Iraq, the Middle East’s sec-
ond-biggest producer, are “potentially vulner- able” amid rising political risks in the country and the broader region, the IEA warned. Crude prices briefly soared to a three-month high above $70 a barrel last week as tensions between Washington and Iran erupted in neighbour- ing Iraq, where the US assassinated an Iranian general and Iran struck US military bases in response. Though hostilities have since faded, the threat of escalation still menaces Iraq, which was already grappling with domestic protests that had spread to its oil-rich southern region. Oil supplies surged last decade.
So far, the clash between Washington and Tehran has not yet caused any supply disrup- tion, and protests inside Iraq have had only minimal impact on the country’s oil operations, the agency said. Global oil markets have a “solid base” of ample inventories and a swelling US shale oil output is helping to weather any shocks, it said.
Iraq’s fragile security situation may limit its plans to expand oil production capacity in the medium term, making it difficult for the global industry to meet rising demand in the second half of the decade, the IEA warned. Baghdad is obliged to reduce output in the coming months as part of its agreement with fellow OPEC nations to keep world markets in balance. It pumped 4.59mn bpd last month, and will need to reduce this figure by 130,000 bpd to comply with the accord.
Saudi Arabia, the biggest member of OPEC, already delivered all of the additional curbs promised before they formally took effect, pumping 9.68mn bpd in December. Even if OPEC and its allies fully implement the deeper cutbacks announced last month, world markets will still face a surplus of about 800,000 bpd in the first half of the year, the IEA predicted.
The agency has kept forecasts for global oil supply and demand mostly unchanged.™
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w w w. N E W S B A S E . c o m Week 03 22•January•2020