Page 6 - MEOG Week 17

MEOG Commentary MEOG
Iraq most at risk as the Gulf faces oil production cuts
Iraq is facing daunting technical and financial challenges as it begins to cut oil production in support of an OPEC-plus agreement to take nearly 10mn barrels per day off the market to combat falling crude prices.
Iraq
What:
Iraq faces the greatest challenge as countries respond to the massive cut in the oil price.
Why:
Iraq is most exposed country because it has the greatest reliance on oil.
What next:
Iraq and others face very difficult decisions to balance their budgets. Panel indent
UNLIkE previous cuts, this one is so large that Iraq can only meet its new quota by ordering curtailments at oilfields operated by interna- tional oil companies (IOCs) – an expensive proposition likely to trigger difficult negotiations with IOCs, given contract provisions that protect companies.
Iraqi oil production fell to a two-year low in March, as reduced demand and other coronavi- rus (COVID-19) related disruptions began to cause shut-ins at refineries and fields.
Iraq is planning painful cuts in social benefits relied on by millions of government workers. Saudi Arabia will likely have to delay mega-pro- jects. Egypt and Lebanon face a blow as their workers in the Gulf send back less of the much- needed dollars that help keep their fragile econ- omies afloat.
The historic crash in oil prices in the wake of the coronavirus pandemic is reverberating across the Middle East as crude-dependent countries scramble to offset losses from a key source of state revenue – and all this at a time when several of them already face explosive social unrest.
The economies of all the Arab Gulf oil export- ers are predicted to contract this year, as much as 5% in Iraq, according to the International Mon- etaryFund(IMF).
While some Gulf countries can rely on a cushion of foreign currency reserves, nowhere in the region are the circumstances more dire than in Iraq, where oil sales fund 90% of the state budget.
Iraq saw massive protests in recent months by a populace angry over the weak economy and rampant corruption – and the turmoil could erupt again. Cutbacks in spending will only add to the pain for a population struggling to get by under coronavirus restrictions. In the capital’s tahrir Square protesters are still camped out, determined not to let their movement die.
“Coming into summer the conditions are developing for a perfect storm for the govern- ment,” said Sajad Jiyad, an Iraq-based analyst.
Oil is currently trading at $20 per barrel, dipping even lower some days to levels not seen since 2001. Further constraints will be felt as an OPEC+ agreement to cut production levels by 23% to stabilise the oil market takes hold. May and June are anticipated to be particularly dif- ficult, as that is when oil storage space will be full, making it harder for countries to market oil, according to Robin Mills, CEO of Dubai-based Qamar Energy. “So far it is early, and no one has reachedastagewherethebudgetrunsout,”Mills said. “But that is inevitable – Iraq will probably behitfirst.”
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w w w . N E W S B A S E . c o m Week 17 29•April•2020