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MEOG Commentary MEOG

Iraq makes first moves to

comply with OPEC quotas

Iraq has taken its first steps towards a somewhat unlikely

compliance with OPEC quotas following pressure from Riyadh.

Iraq ThE proposals approved by the Iraqi govern-
ment to try to balance its budget were drastic and
included stopping the disbursement of “unnec-
What: essary” government expenditures and renegoti-
Iraq requests cuts in its ating with oil companies operating in Iraq under
major oil field at Rumalia. licensing rounds to review contracts and ease the
financial burden on the state.
Why: Ihsan Ismaael was appointed as deputy prime
Iraq is obliged to meet its minister for economics and energy, overseeing
share of OPEC+ output the oil ministry and has the challenging task of
cuts. boosting Iraq’s production and export capacity
after years of underinvestment and infrastruc-
What next: ture damage due to war, as well as negotiating
Making cuts and contracts with international oil companies,
balancing its budget will many of whom have been dissatisfied with the
be a herculean task. fiscal terms offered for upstream partnerships.
Renegotiating contract to save money for
the Iraqi government as well as satisfying the
oil companies would appear to be a difficult
path to follow, and when added to the need to
meet OPEC’s demands for a cut in output the
task appears to be even more of a challenge. Iraq
provoked the ire of Saudi Arabia and Russia by Iraq’s oil – around 1.5 million barrels per day
missing its target in May, when it pumped more (bpd). Apart from BP, the massive field is also
than 600,000 barrels a day above its quota of 3.6 developed by national Iraqi firm, Basra Oil Co.
million barrels, so it will feel obliged to try to (BOC), as well as PetroChina.
meet its international commitments.
The first signs in how this might be achieved BP takes a hit
came in a statement by oil minister Ihsan Ismaeel As BP comes to the negotiating table, it will do
in an interview with Sharqiya TV that Iraq will so under changed circumstances from those that
export an average of 2.8 barrels per day (bpd) applied only a few months ago.
of oil in June, adding that it was in the country’s The company has said it expects oil prices to
interests to comply with an OPEC+ deal to cut be lower than expected from now until 2050 as
production. governments speed up plans to cut carbon emis-
he also said his ministry had requested Kurd- sions in the wake of the coronavirus pandemic.
ish authorities in northern Iraq to export a maxi- The oil giant expects the price of Brent crude
mum of 370,000 bpd as of June to help Iraq abide to average $55 a barrel and has also said that
by the OPEC+ quota. because of this it would revise down the value of
In other moves, last week Iraq asked some its assets by as much as $17.5bn (£13.8bn).
Asian refiners to forgo contracted shipments of As a result, BP said it would have to become a
its crude in the first signal that it’s trying to fulfil “leaner, faster-moving and lower cost organisa-
its pledge to OPEC+. tion.” Last week, the firm announced plans to cut
Iraq, which has had trouble keeping up with 10,000 jobs following a global slump in demand
cuts it agreed on with other key crude exporters, for oil. It is likely that these facts will play out in
known as OPEC+, has reportedly asked BP to the coming discussions; no doubt Iraq will have
reduce production at the nation’s biggest field of other measures in mind but this is the first card
Rumaila by 10 per cent as part of a push to com- played. Further cuts of 50,000 bpd by Lukoil and
ply with the quotas. 70,000 by Exxon fromthe West Qurna fields have
Rumaila is the third-largest producing field been announced which is a sign that Iraq is tak-
in the world and now delivers nearly a third of ing its promises seriously ™

P4 www. NEWSBASE .com Week 24 17•June•2020