Is Iraq an underappreciated risk in the oil markets?
Iraq’s record-high oil exports may be affected by the increasing political turmoil in the country. While political instability has had little impact on the country’s oil industry, growing unrest is now threatening Iraq’s oil production. In addition, Iraq continues to struggle over ownership of oil in the Kurdistan region, adding to the industry’s challenges.
The Iraqi oil industry was reporting Positive trends in recent monthswhere production levels amounted to about 4.4 billion barrels per day of crude oil, and exports reached a level Highest levels in 50 yearsvalued at $11.07 billion. The increase in exports is largely due to a shift in global dependence away from Russia towards other oil powers over the past few months. Iraq holds together 145 billion barrels of oilWhich makes it the fifth largest oil country in the world. Crude oil is vital to Iraq’s economy, with oil revenues contributing about 90 percent of the country’s income.
However, heightened political tensions across the country are now putting these positive oil trends under threat. In recent weeks, Iraq witnessed the worst political violence Since 2019Where the conflict between the various Shiite groups intensifies. Street fighting in central Baghdad saw the deaths of at least 30 people. The conflict revolves around A battle between rival Shiite factions. As the largest sectarian group in Iraq, various factions are fighting for political power as each group seeks greater control over the country’s oil wealth, as well as political dominance in the Middle East region. The unrest began in October 2021 following the elections for the Iraqi parliament. Sadr’s party won a majority 73 of 329 seatsformed a coalition with the largest Sunni Arab parties and the Kurds, which together controlled a majority of the seats, in an effort to form a government.
Sadr was banned by a range of Iran-backed Shiite parties and his efforts ultimately failed as the Supreme Court declared that the lack of majority support meant that a government could not be formed. In June, al-Sadr asked his 73 lawmakers to resign in protest, and later announced that he would leave politics. Then tens of thousands of his followers took to the streets across Baghdad and southern Iraq, burning opposition offices and fighting against Iranian-backed militia fighters in the Iraqi security forces. Al-Sadr eventually told his supporters to leave the area, indicating more control over his fighters.
While the Iraqi oil industry has been largely unaffected by previous instances of political turmoil, this latest escalation in conflict puts the sector under threat. Fernando Ferreira, Director at Rapidan Energy Group male status“While Iraqi production is usually fairly resilient to counteract disruption, the current political environment is extraordinarily toxic and poses a significant risk to the oil sector.” This week, the head of commodities at RBC, Helima Croft, suggested that protests could lead to that One million barrels per day of oil are withdrawn from the market If the conflict escalates.
additional Political tensions continue to be felt in the Kurdistan Region (Kurdistan region of Iraq) where it is trying to hold on to its oil exports and revenues. Earlier this year, the Iraqi Federal Court deemed the oil and gas law regulating Kurdistan’s oil industry unconstitutional. The Iraqi government has since increased its efforts to control the export of oil from the Kurdistan Region of Iraq.
Now, fears of political undermining of the oil companies operating in Kurdistan have led to a US appeal to defuse tension between Iraq’s central government and the semi-autonomous region. The two companies believe that intervention is required to ensure the stability of oil production between northern Iraq and Turkey. If the flow stops, it could result in Turkey shifting its dependence toward Russia or Iran for its oil supplies. In addition, the economy of the Kurdistan Region may be at risk if it loses oil revenues.
Other concerns are also affecting the country’s oil industry, with concerns that a lack of investment in the Kurdistan Region’s oil sector could lead to its production being cut in half due to the drying up of its wells and the need for more exploration in the region. As the KRG relies heavily on its oil revenues to support the region’s economy, the reduction in production could be devastating and could lead to further instability in the region. But the outlook is optimistic if the Kurdistan Region can find more funding, with the possibility of 580,000 barrels per day by 2027, with 530,000 available for export, if investment is made. However, without the investment, that number drops to 240,000 barrels per day available for export.
The combination of political turmoil in the Iraqi capital and intense fighting over the country’s resources, between the Iraqi state and the Kurdistan region, puts the Iraqi oil industry in a volatile position. While the state must address its political situation to ensure the stability of its oil exports, the Kurdistan Region seeks political and financial support from outside powers to ensure the continuity of the oil industry.
By Felicity Bradstock for Oilprice.com
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