Iraq Attempts To Cut Oil Production To Meet OPEC Quota

(Reuters)

Facing the dual crises of oversupply of oil and a lack of demand due to the Russian-Saudi dispute and the coronavirus outbreak OPEC agreed to a new production quota to try to shore up prices. In May, Iraq announced it was partially fulfilling its new quota set by the organization.

 

Iraq is supposed to cut its petroleum production by 1.06 million barrels a day. In May, it said it would be reducing its output by around 600,000-700,000 barrels a day. Roughly 60% of that would come from state run fields such as Majnoon in Basra. The other part would be from fields run by international oil companies (IOCs) like Rumaila run by British Petroleum, West Qurna 2 operated by Lukoil, West Qurna 1 managed by ExxonMobile, and Halafaya run by the China National Petroleum Corporation. Baghdad was hoping that the Kurdistan Regional Government would reduce its production as well since it’s counted as part of Iraq’s total by OPEC, but nothing has been agreed upon between the two sides. Not all of the member states fully comply with the organization’s quotas, but Iraq has been one of the biggest violators of previous deals. So far, enough cuts have been made to partially stabilize oil prices, but they are still at a greatly reduced amount, and not enough for Iraq to be fiscally viable.

 

Further cuts may be impossible at this time because of problems with the IOCs. They have technical service contracts that pays them a fixed amount for each field they run and then additional money for each barrel they produce. Due to the economic crisis Iraq doesn’t have the money to pay the IOCs and cover its basic bills such as government workers’ salaries and social services. In April, Baghdad only earned $1.423 billion from its petroleum sales. It needs $1 billion alone just to cover the IOCs. The Oil Ministry has asked to delay payments to the corporations as a result. Until that issue is worked out more changes in output are unlikely. Iraq is hoping that the OPEC deal will raise prices enough to make up for its reduction in oil exports.

 

SOURCES

 

Iraq Oil Report, “Fields and refineries shut in as Iraq production drops ahead of deeper OPEC cuts,” Iraq Oil Report, 4/20/20

- “Iraq orders new OPEC cuts targeting IOC fields,” 5/8/20

 

Mohammed, Aref, Rasheed, Ahmed, “UPDATE 1-Iraq agrees with oil majors to cut output, but short of OPEC+ target,” Reuters, 5/13/20

 

Reuters, “Iraq emerging as OPEC’s main laggard in making record output cut: sources,” 5/6/20