Iraq seeks higher OPEC quota amid post-war production push

(Bloomberg) – Iraq stepped up its push for bigger OPEC production quotas as it seeks to recoup oil sales that were lost because of the Iran war, even raising the prospect that it could consider an exit in the future.

Iraq’s oil ministry warned on Thursday that “a decision will have to be made regarding whether to remain in or withdraw” if it doesn’t receive a high enough ceiling from the Organization of the Petroleum Exporting Countries, though it said later that an exit hasn’t been proposed, and consideration of such a move isn’t the government’s official position. 

The mixed signals present another potential blow for an organization still reeling from the recent exit of long-time member the United Arab Emirates, and come as Middle East nations ramp up output following the Iran war, sinking prices and threatening to unleash a surplus. 

Iraq’s campaign to pump more underscores the pressures that producers face to recoup lost revenues. The market is dealing with a deluge of supply coming out through the Strait of Hormuz after the waterway was unblocked by a U.S.-Iran peace deal. Those flows have led to oil prices giving up all their wartime gains.

Countries in the Persian Gulf have lost out on millions of barrels of sales, with Iraq’s finances among the hardest hit. Throughout the war, OPEC continued to slowly raise the levels that nations are allowed to produce, though only now—with the reopening of Hormuz—can those increases be made. 

Iraq’s rumblings come as OPEC and its partners engage in an often-contentious process of assessing how much each member is technically able to produce, with a view to setting output targets for next year. 

Iraqi Oil Minister Basim Muhammad Khudhair said in May the country sought a level of 5 MMbpd, a considerable upgrade. Signaling readiness to leave the organization could also be a tactic to press for a higher target.

Just before the war, Iraq was pumping roughly 4.4 MMbpd and may have had capacity to produce a few hundred thousand barrels more, according to data compiled by Bloomberg.

Initially on Thursday, Iraq’s Oil Ministry spokesman Salim Al-Rikabi said in a text that, while the country “currently has no intention of withdrawing,” Iraq believes OPEC should raise its output ceiling. If this aspiration isn’t accommodated, it cautioned, “a decision will have to be made regarding whether to remain in or withdraw.”

Within a few hours the threat was dialed back. A subsequent ministry statement said “reports suggesting that Iraq is considering ending its membership in OPEC do not reflect the official position of the Iraqi Government. Neither the Prime Minister nor the Government of Iraq has proposed withdrawing from the Organization.”

The later statement from the ministry said there was nevertheless recognition among OPEC members “regarding Iraq’s unique circumstances and the challenges faced by its oil industry over the past four decades, including wars, sanctions and numerous other difficulties.” It said those issues are being taken into consideration in order to set the country’s production at a “fair” level.

Rebuke 

Baghdad has chafed against output limits set by OPEC+ ever since the alliance between core OPEC members and other nations such as Russia was formed in 2016, contending that it deserved to revive oil exports and rebuild an economy shattered by decades of conflict and sanctions. Its flouting of official quotas has previously earned a rebuke from OPEC’s de facto leader, Saudi Arabia.

Similar tensions helped spur the UAE to announce its exit from OPEC in late April, severing decades of membership. 

Abu Dhabi had grown impatient to make full use of investments in oil production capacity before the energy transition eats further into fossil fuel consumption. The Saudis had often pressed fellow OPEC nations to withhold crude supplies and support prices, though its stance appeared to shift last year.  

The UAE’s departure reduced the total capacity of core OPEC members by about 14%, and any such move by Iraq would diminish it by a further 17%, according to data compiled by Bloomberg.