Business | Oil & Gas

Iraq eyes return to Opec quota system

Country’s production has recovered rapidly in recent years leading to pressure within for Baghdad to adopt production discipline

  • Financial Times
  • Published: 16:58 January 29, 2014
  • Gulf News

  • Image Credit: EPA
  • Oil flow is regulated near Najaf, south of Baghdad. Iraq is aiming for just over 4 million barrels a day of production by the end of this year, although analysts are sceptical.

Iraq has for the first time begun preparing for a return to the Opec (Organisation of the Petroleum Exporting Countries) production quota system, in a shift of policy that reduces the prospect of oversupply and lower prices in global oil markets.

Iraq, whose oil industry has recovered rapidly since the US-led invasion a decade ago, is expected to be one of the largest sources of supply growth in the oil market over the next decade.

With North American output also rising rapidly due to the shale revolution, some analysts have raised the prospect of a supply glut unless Opec can control production.

Until now Iraq has insisted that other members of the producers’ group, which controls around a third of the world’s oil production, should accommodate its growth. But speaking to reporters on Tuesday, Dr Hussain Al Shahristani, Iraq’s deputy prime minister for energy, said the country had started preparing the ground for a return to the quota system.

“Discussions would have to be held at Opec when we reach four to 5 million barrels of production capacity,” he said. “We are preparing a proposal for calculating quotas for Opec members and criteria to be used for that.”

Al Shahristani said other Opec members were aware of Iraq’s work, and would have their own proposals.

Opec produces around 30 million barrels a day of crude with each member assigned a target, although these are not disclosed to the public. Iraq has been excluded from these quotas for many years because of the impact of sanctions and war on its oil industry.

Tough negotiations

However, Iraqi production has recovered rapidly in recent years leading to pressure within the cartel for Baghdad to adopt production discipline as well. Iraq currently produces 3 million barrels of crude oil a day, second only to Saudi Arabia within Opec.

The comments from Al Shahristani mark a more conciliatory tone that sets the stage for tough negotiations within Opec, where Iraq has been competing with Saudi Arabia for market share in Asia and particularly China.

Iraq is aiming for just over 4 million barrels a day of production by the end of this year, although analysts are sceptical. Al Shahristani said this target did not mean that discussions would necessarily have to start this year. Recent weeks have seen leading forecasting bodies raise their estimates for global oil demand, due to strong consumption in the US.

Al Shahristani said: “For the time being we are working on the assumption that there will be room for Iraqi crude without squeezing anyone seriously.”

Storage facilities

But if Iranian production were to increase significantly this year as a result of discussions on its nuclear programme, Al Shahristani said that would “obviously” expedite discussions within Opec.

Analysts reckon growth in Iraqi exports this year could be challenged by problems with storage facilities on the Faw peninsula in southern Iraq.

Bad weather has repeatedly forced BP to cut back production at its giant Rumaila oil field.

Al Shahristani acknowledged: “Curtailment due to bad weather could . . . cause a production loss.”

Separately, Al Shahristani said Iraq planned to start importing natural gas from neighbour Iran as soon as April despite continuing western sanctions against Tehran’s energy sector. Al Shahristani said his government had explained to the US that Iraq had no other way of providing electricity for its population.

“We explained that getting gas for our power plants is not a luxury.”

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