Iraq to continue to benefit from higher oil prices in 2018

by | Feb 1, 2018 | Iraq News

Marc Simms is an occasional blogger for Proelium Law LLP. Marc holds a MLitt in Terrorism Studies and a Masters in International Relations, both from St Andrews. His particular interests are in emerging international security issues, unconventional warfare and terrorism.

Oil prices look to continue to rise in 2018, according to the latest commodity risk report undertaken by Citigroup.

Citing disruptions in oil supply, along with the cuts in production by OPEC, tight market conditions and continuing geopolitical unrest in the Middle East and East Asia, the 2018 report suggests that the cost of crude oil could even rise to between $70 and $80 a barrel this year.  In particular, the report highlights the possibility of new sanctions against Iran by the USA, and potential disturbances in the “fragile five” OPEC nations – a group which includes Iraq, but also counts Iran, Libya, Nigeria and Venezuela among its number – as being factors in rising prices.

Iraqi northern oil distribution is disrupted…for now

A limiting factor for Iraq in the short-term is that its northern oil fields and distribution were disrupted, both by the ISIS “caliphate”, and from the government reaction to the Kurdish independence referendum, which saw the seizure of the Kirkuk oil fields from the Kurdish Regional Government last October and the cessation of those fields exporting oil to Turkey.

This disruption is however limited to the north, while Iraq’s southern oilfields continue to export without issue, and have in fact increased production to help set off the deficit from the northern oil fields.  This led to record or near-record numbers of exports in October, November and December last year, and increased foreign investment has meant the productivity of the distribution of the oil supply chain has been markedly improved.

Looking to Iran, India and China

Iraq is also seeking new opportunities with regards to its export markets.  Among the most important of these is the planned exports of Kirkuk oil to Iran, which is scheduled to start in late January.

Turning the Kirkuk oilfields towards Iranian productions will also significantly aid Iran’s aim to export more of its gas via Iraq, and use the Iraqi oil to offset domestic gas use.  The pipeline also raises the possibility of Iraq, Iran and Syria reviving the “Friendship Pipeline” project they committed to in 2011.  Such a pipeline would be a significant rival route to the proposed Nabucco and Qatar-Turkey pipelines, but would, of course, rely on the Syrian civil war coming to an end before it could be realised.

Iraq has also taken advantage of the reduction in Saudi Arabian exports to secure a more favourable market in India, where it has taken over from the Kingdom as the top supplier of crude oil to the country.  India has become an increasingly important destination for Iraqi oil, with consistently rising exports for the past three years.  Iraq has also made strides in its exports to China, where it has become the 4th largest supplier of the country’s energy needs, as it seeks to diversify the origins of its oil supplies.

Deal with Sonatrach

Furthermore, Iraq is exploring the possibility of deals with the Algerian state-owned Sonatrach to undertake further oil and gas exploration in the country.  In spite of its impressive numbers with regards to oil exports, Iraq’s energy sector is considered underdeveloped, especially with regards to natural gas.

Conclusions

While Iraq may be one of the “fragile five”, its short-term prospects with regards to oil are in a very good place at the moment.  Whether this can be sustained over the long term will depend on how Iraq stabilises the north of the country, whether the Popular Mobilisation Forces are easily convinced to disband, and whether Iraq and the KRG can reconcile after last year’s referendum.  Nevertheless, the short-term benefits of Iraq’s current favourable position will no doubt help with regards to these issues, as well as contributing to the rebuilding of those areas affected by ISIS.

 

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