Oil & Gas

Iraq has a tough job to balance Opec quotas with its capacity goals

December 23, 2024, 4:52 PM

Opec's oil quota for Iraq is lower than its production capacity, and it has granted new contracts such as with BP for development of Kirkuk

Iraq’s capacity greater than Opec quota
Second-largest producer in group
Contracts already granted

Iraq is facing some tough choices and conflicts when it comes to its national oil policy.

While its oil production is expected to rise by only around 200,000 barrels per day (bpd) in the next two years, in line with a new supply restraint accord by Opec+, it already has plans to boost output capacity by nearly 2 million bpd during that period.

Under the new agreement reached by the oil producers’ group this month, Iraq’s crude production will rise gradually from around 4 million bpd to 4.1 million bpd at the end of 2025 and nearly 4.2 million bpd at the end of 2026.

Nabil Al-Marsoumi, an economics and energy professor at Basra University in South Iraq, told ABGI that this modest increase in Iraq’s quota will be a hurdle to its ambitious plan to expand its oil output capacity.

“The UAE got an increase in its Opec quota of around 300,000 bpd while Saudi Arabia’s production will climb by about 900,000 bpd … I wonder why Iraq has not pressed for a better Opec+ quota given its massive oil reserves and plans to increase its crude production capacity to over 6 million bpd,” said Al-Marsoumi.

Iraq, the second-largest producer in Opec, plans to increase its crude oil production to 6 million barrels per day (bpd) by 2028, state-owned Iraqi News Agency (INA) reported in September, citing deputy minister for extraction affairs Basim Khudair.

Al-Marsoumi said: “Iraq has recently awarded several contracts to foreign companies to develop its oil and gas fields.

“This clearly points to the absence of a concrete vision in the oil policy because Iraq is now committed to pay damages to those companies for the produced oil, which it may not be able to market due to output restraint.”

British oil major BP this month finalised the technical terms with the Iraqi government for redeveloping the Kirkuk oil and gas fields.

In separate comments to Iraq’s Sumaria TV, Marsoumi said the best solution for Iraq is to “pull out” of Opec so it can freely increase its production to 5 million bpd in 2025 to support its deficit-ridden budget.

Another Iraqi energy analyst agreed that Baghdad faces what he described as “difficult options” as it struggles to rebuild its war-damaged hydrocarbon sector.

“Iraq has to decide what it actually wants – higher production or higher revenues or both. If it violates its quota, it has to think about the reaction of other major members, particularly Saudi Arabia,” said Walid Khaddouri, former information director at the Kuwaiti-based Organization of Arab Petroleum Exporting Countries (Oapec).

“Iraq must define its priorities: cash or oil,” Khaddouri added.

“But there is also the case that when you make deals with global oil firms and they make important hydrocarbon discoveries, you have to stick to those deals or you will have to pay heavy penalties. This is a real problem that Iraq is now facing.”

In early 2024 Iraq announced the award of several oil and gas concession sites to 22 global companies as part of concession rounds 5+ and 6.

In a report in October, the official Iraqi Al Sabaah newspaper said the country is planning to offer fresh oil and gas concession sites to international companies in 2025 as part of two new licensing rounds “6+ and 7”.

Iraqi oil minister Hayan Abdel Ghani said in September the new projects would add nearly 3.459 billion cubic feet of gas per day and boost the country’s recoverable oil deposits to 160 billion barrels from around 145 billion.