Iraq’s ambition to rival Saudi Arabia’s oil output may never come to fruition, as analysts predict its output and capacity may peak in five years, falling short of its 2027 targets. In recent years, political infighting has stalled Iraq’s opportunity to invest in output growth, making it difficult to monetize the vast oil reserves it has. Despite the efforts of the country’s new energy minister, Baghdad may struggle to achieve its goals in light of the energy transition, which is rapidly gathering pace.
Oil output in Iraq has remained at around 4.5 million barrels per day (bpd) since 2016, following the government’s decision to cap output under the Organization of the Petroleum Exporting Countries (OPEC) and allies agreement. According to oil ministry spokesman Asim Jihad, the country’s new Oil Minister Hayan Abdel-Ghani plans to update its oil production strategies to meet local needs while adhering to the OPEC+ agreement. The country’s production target remains at 4.43 million bpd until December, making it too early for the new government to talk about any significant increase in Iraq’s oil production outside of the OPEC+ agreement.
In light of these developments, Iraq has shifted its focus to refining and gas sectors while lowering capital expenditure in the oil sector, say analysts at FGE consultancy and Rystad Energy. The country has repeatedly delayed its target to reach 7-8 million bpd capacity from the current 5 million bpd. According to some industry experts, Iraq may never reach these targets, and capacity may peak and plateau at 6.3 million bpd by 2028 before declining. This is due to the challenging investment environment, security concerns, and politics, which all prevent Iraq from pushing output higher.
The ambition to increase capacity to 12 million bpd, which was set after the war began, has been significantly scaled back in 2012 due to low recovery factors, high natural decline rates, and insufficient infrastructure investment. The major oil companies were hopeful that Baghdad would improve the terms of technical service contracts (TSCs), but companies such as ExxonMobil and Royal Dutch Shell left when that did not happen. Analysts say that the problems that prevent Iraq from achieving its goals are above the ground, such as political infighting, changes to government, and red tape.
Successive governments have failed to sign off on Iraq’s fifth licensing round in 2018, which caused international oil companies to leave the country. However, six deals out of eleven oil and gas blocs on offer were eventually signed in February, marking long-awaited reforms to the conditions of operating in Iraq. The beneficiaries were UAE firm Crescent Petroleum and two Chinese companies. Despite these developments, issues remain, such as the stalled large-scale seawater treatment project that is crucial to boosting output at the southern oilfields through water injection.
Overall, Iraq’s ambition to rival Saudi Arabia’s oil output is unlikely to happen due to the challenges it faces. The country has shifted its focus to refining and gas sectors, while Iraq’s oil minister plans to update its oil production strategies to meet local needs while complying with the OPEC+ agreement. Achieving output targets remains challenging, and while there are plans to boost output at the southern oilfields, red tape and disagreements over contractual terms have hampered progress.
