Friday, July 6, 2012

Iraq’s Oil Exports And Revenues Both Take A Hit In June 2012

Despite increased oil production and the opening of two new terminals in the south, Iraq’s exports have dropped for two straight months now. At the same time, prices for its crude have declined, as there is a glut in world supply right now as well as fears of further problems with the international economy. Together that means that Iraq is not bringing in as much as it did before from its most important natural resource. That could threaten the country’s economic plans, as Iraq is the most oil dependent country in the Middle East and North Africa.

Iraq’s oil industry has witnessed continued growth. In June 2012, it averaged 3 million barrels a day in total production. That was up from 2.92 million in May. This has been due to the work of foreign energy companies that returned to the country in 2009. Last month for instance, France’s Total announced that the Halfaya field in Maysan province, which it operates in a joint venture with PetroChina, Malaysia’s Petronas, and the state-run South Oil Company, started producing for the first time at a rate of around 70,000 barrels a day. The Oil Ministry has plans to reach 3.4 million barrels a day in output by the end of the year, which appears within reach. The problem for Iraq is that it lacks the infrastructure to fully exploit this growth in production. There is a shortage of pipelines, storage facilities, etc. It has been able to open two new terminals in Basra this year, which has greatly increased the capacity to export, and has three more in the works. It still has lots more to do, and those plans are all dependent upon petroleum revenue to finance them.

Iraq exported approximately four million barrels less oil in June compared to May. Last month, Iraq shipped a total of 72 million barrels. That was down from 76 million barrels the previous month. That averaged out to 2.403 million barrels a day in June, compared to 2.452 million barrels in May. That marked the second straight month that exports had dropped. In April, Iraq had the highest exports since the 2003 invasion at 2.50 million barrels. An Oil Ministry spokesman claimed that the numbers were down, because of an increase in local demand. During the summer months more refined products like fuel are needed to run generators to meet the spike in demand caused by the heat, so oil was diverted to those needs. Overall, exports through Basra stayed constant from May to June at an average of 2.08 million barrels a day, while shipments through the northern Kirkuk line dropped from 366,000 barrels in May to 312,000 in June. The previous month’s decline was caused by bad weather that limited docking at the Basra terminals. This is a common occurrence in Iraq with technical, meteorological, and terrorist problems often limiting exports. Even then, Iraq is still producing and shipping more petroleum than it has done in more than a decade.
Iraq Oil Exports And Profits 2011-2012
Avg. Price Per Barrel
Revenue (Mil)
Jan. 11
2011 Avg.
Jan. 12

Oil Exports Through Basra 2012
January 1.712 mil/bar/day
February 1.711 mil/bar/day
March 1.92 mil/bar/day
April 2.12 mil/bar/day
May 2.08 mil/bar/day
June 2.08 mil/bar/day

Oil Exports Through Kirkuk 2012
January 393,500 bar/day
February 375,000 bar/day
March 400,600 bar/day
April 387,000 bar/day
May 366,000 bar/day
June 312,000 bar/day

Iraq’s new production is both a blessing and a curse. On the one hand, Iraq’s increased exports have earned the country record high profits, especially in the last year when prices averaged over $100 per barrel. In the first six months of 2012, it brought in $45.277 billion, up from $41.679 billion in the last half of 2011, and the $41.278 billion it earned in the first half of last year. On the other, it is contributing to a surplus in the world’s petroleum supply that is causing profits to decline. In June, Iraq earned $6.453 billion, down from $7.831 billion in May. Last month’s revenue was the lowest since February 2011 when it made $6.064 billion. A barrel of Iraqi crude went for $90, down from $103.3 in May. That was the first time prices had dipped below $100 a barrel since February 2011. This happened despite an improvement in the quality of Iraqi oil shipped, which raised prices in June. International crude rates have gone down for a number of reasons ranging from worries about the European Union’s debt problems, to a slowing Chinese economy, to overproduction by OPEC members. That organization is going over its target of 30 million barrels a day in production by 1.9 million barrels. Iraq has blamed Saudi Arabia, Kuwait, and the United Arab Emirates as the main culprits, and demanded that they cut back in their output to raise prices. At the same time, Iraq has no OPEC quota, and is increasing its own output, which is now blowing back upon itself. Iraq is fully committed to boosting its production as high as possible to one, bring in income to rebuild after decades of sanctions and war, and also because it would like to regain its power within OPEC. With the state of the world economy and international energy markets however, this strategy is backfiring. Iraqi officials don’t seem to understand the dilemma that they are in, and are pressing their neighbors to cut back on output instead of looking at their own goals.

Oil provides 90% of Iraq’s revenue, and is its most important natural resource. From 1980 to 2008 Iraq’s petroleum industry was beset by wars, sanctions, invasion, and an insurgency. In 2009, that finally began to change as Baghdad welcomed back international companies to revive the business. Since then its output has been up, and it was taking the steps necessary to increase its infrastructure to export more. That came just at the right time as crude prices skyrocketed, because of tensions in the Middle East and North Africa. Now that situation is changing, as Iraq’s plans for continued growth are coming into conflict with the world’s oil supply. The government has shown some awareness of this matter, and is pressing OPEC to cut its production, but at the same time it is trying to boost its output as much as possible. This contradiction will likely undermine Baghdad’s hopes of becoming one of the largest oil producers in the world. More importantly, the decline in revenues it will engender will threaten its development plans for the entire country, because the budget is almost completely dependent upon petroleum sales. Iraq must find a balance between its goals of becoming an oil power once again, and the situation in the world economy. The country’s strategic planning is notoriously poor however, so it may take a long time for it to figure out a solution at which time it will have caused more damage to itself than was necessary.


Agence France Presse, “Iraq oil revenues lowest since February 2011,” 7/1/12

Ajrash, Kadhim and Razzouk, Nayla, “Iraq’s Crude Production Rises to Highest Level in 20 Years,” Bloomberg, 6/26/12

Associated Press, “Iraq’s June oil revenues drop by 17.6 percent due to plummeting prices, domestic needs,” 7/2/12

Aswat al-Iraq, “72 million barrels Iraqi June exports, spokesman,” 7/1/12

Chazan, Guy, “Iraq and Iran form alliance within Opec,” Financial Times, 6/15/12

Dow Jones, “Total Starts Production at Iraq’s Halfaya Oil Field With PetroChina, Petronas,” 6/27/12

Galani, Una and Swann, Christopher, “Iraq rise will upset OPEC power balance,” Reuters, 6/11/12

Johnson, Kay, “Again a power in OPEC, Iraq could shift landscape,” Associated Press, 6/15/12

Al-Jurani, Nabil, “Iraq boosts oil export capacity in Gulf,” Business Week, 4/20/12

Lando, Ben and Staff, “$39B in oil revenue through May, though exports drop,” Iraq Oil Report, 6/4/12

Rasheed, Ahmed, “Iraq Basra oil exports restored to 2.37 million barrels per day,” Reuters, 6/6/12
- “RPT-UPDATE 2-Bad weather still slowing Iraq Basra oil exports-source,” Reuters, 6/4/12

Reuters, “Iraq Basra Light oil quality improves, costs rise,” 6/15/12
- “Iraq Halfaya oilfield starts operation – CNPC,” 6/21/12

Sayfadin, Dilshad, “Iraq’s oil exports reached 74m barrels in June,” AK News, 7/1/12

Seeking Alpha, “Exxon Poised To Jump On Kurdistan Exploration,” 6/28/12

Smith, Grant, “Iraq Says Oil Price Decline Is Severe; Surplus ‘Tremendous,’” Bloomberg, 6/11/12

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