Tuesday, July 7, 2015

Iraq Reaches Another New High In Oil Exports As Budget Deal With Kurds Breaks Down


For the fourth month in a row Iraq reached another new high in oil exports. Previously this was accomplished due to the budget deal between the central and Kurdistan regional governments. That recently broke down after the Kurds complained about two consecutive months of low payments from Baghdad.

Iraq exported an average of 3.187 million barrels a day in June 2015. That was a new high for the country, which had not exported those amounts since the 1990s. It surpassed the previous highs which were achieved in just the last few months when it exported 3.145 million in May, 3.077 million in April, and 2.98 million in March.

The previous month’s figures were achieved by a large jump in output from the southern ports in Basra and the budget deal with the Kurds. In March the south exported an average of 2.71 million barrels, before dropping to 2.62 million April, but then climbed back up to 2.69 million in May and 3.02 million in June. The Kurdistan Regional Government (KRG) also added 268,000 barrels in March, 450,000 in April, and 451,000 in May. The Bagdad-Irbil understanding just broke down however.

Iraq Oil Exports & Revenues 2014-15
Month
Avg.
Exports
Avg. Price
Per Barrel
Earnings
Jan. 14
2.228
$102.37
$7.074
Feb
2.799
$102.05
$8.001
Mar
2.396
$101.03
$7.507
Apr
2.509
$100.69
$7.582
May
2.582
$100.69
$8.077
Jun
2.423
$102.96
$7.470
Jul
2.442
$102.27
$7.742
Aug
2.375
$97.44
$7.172
Sep
2.542
$90.76
$6.916
Oct
2.432
$81.12
$6.120
Nov
2.51
$70.40
$5.25
Dec
2.941
$56.59
$5.161
2014 Avg.
2.51
$92.39
$7.013
Jan
2.535
$41.45
$3.258
Feb
2.597
$47.43
$3.449
Mar
2.98
$48.24
$4.46
Apr
3.077
$51.70
$4.8
May
3.145
$55.87
$5.3
Jun
3.187
$55.62
$5.3

2015 Oil Exports From Basra
Jan 2.39 mil/bar/day
Feb 2.29 mil/bar/day
Mar 2.71 mil/bar/day
Apr 2.62 mil/bar/day
May 2.69 mil/bar/day
Jun 3.022 mil/bar/day

2015 Oil Exports By Kurds
Jan 153,000 bar/day
Feb 306,000 bar/day
Mar 268,000 bar/day
Apr 450,000 bar/day
May 451,000 bar/day
Jun 164,733 bar/day

Under the Irbil-Baghdad pact the Kurds were to export an average of 550,000 barrels a day for the Oil Ministry, and in return the regional government would receive 17% of the budget. The Kurds never reached that quota nor a revised mark it set for itself of 375,000 barrels a day for the first quarter of 2015, and then 600,000 for the rest of the year to have an annual average of 550,000 barrels. Baghdad on the other hand, made inconsistent payments to the regional government, and never revealed what formula it was using to determine how much it was giving the KRG each month. In March for example, the Kurds accounted for 8% of total exports and received $439 million or 9% of the oil revenues from that month. In April and May the KRG made up 14% of exports each month, but received $445 million and $430 million or 9% and 8% of the earnings. The Kurds strenuously complained about these amounts and there were several meetings between top officials, but nothing was resolved. The result was that the Kurds sold most of their oil for themselves in June with only 164,733 barrels a day for the Oil Ministry. By June 29 the KRG had sold 9 million barrels via Turkey for itself. Both Irbil and Baghdad are desperately short of cash with the Kurds owing a huge amount of money to the oil companies that operate there and to their public employees. Despite the differences the Kurds said that they were still open to re-negotiating the terms of the budget. They would like to sell their oil independently and then determine how much of the profits they will share with Baghdad. The Abadi government probably wouldn’t agree to that, as it wants central control over the energy industry.

The budget deal stood for five months, but eventually broke down like most of these agreements tend to do. The problem was that it never had enough details allowing each side to interpret it in their own and different ways. The Kurds wanted 17% of the budget to be delivered each month minus expenses, while Baghdad expected 550,000 barrels a day from Irbil. In the end, neither side followed through with their obligations, and the tensions that arose as a result led to its demise. The question now is whether they can come back together to forge another compromise, because the two do need each other as they face declining oil prices and the war with the Islamic State. The issue then arises as to how long any deal will last.

SOURCES

eKurd, “Iraqi Kurdistan ramps up independent oil sales,” 6/29/15

Lando, Ben and Van Heuvelen, Ben, “Exports rise on Basra boost,” Iraq Oil Report, 7/1/15

Van Heuvelen, Ben, Osgood, Patrick, and Lando, Ben, “Baghdad-Erbil oil deal crumbling,” Iraq Oil Report, 6/29/15

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