A debate within Iraq over whether it should ask to be exempt from OPEC+ oil supply cuts has resurfaced as low prices squeeze its finances, challenging a government struggling to tackle the destruction of years of war and rampant corruption.
OPEC’s second-biggest producer, Iraq, has failed in the past to fully comply with OPEC+ oil output reductions, pumping above its production targets since the pact was first signed in 2016 between OPEC and its allies led by Russia.
“Iraq always believed they were not properly treated in December 2016 when they were not exempted. As the economy continues to reel from low prices, this issue keeps resurfacing,” said an OPEC source.
Iraq’s economy and oil sector were battered by years of wars, sanctions, and a stubborn Islamist insurgency triggered by the U.S. invasion. Baghdad complained it had struggled to revive its stagnating oil industry, at a time where other OPEC members benefited and boosted theirmarket share.
Iraq relies on oil to fund 97% of its state budget. Iraqi Finance Minister Ali Allawi told parliament Wednesday that reforming Iraq’s economy would take five years of work and that state debt amounted to 80-90% of national product, while foreign debt was at $133 billion.
From May 1, the Organization of the Petroleum Exporting Countries and allies, a grouping known as OPEC+, made a record cut of 9.7 million BPD, or 10% of global output, after the coronaries destroyed a third of world demand. From Aug. 1, the cut tapered to 7.7 million BPD until December.
Iraqi politicians have criticized the pact, which the previous caretaker government signed under which Baghdad had committed to a big cut in its output.
With oil prices currently trading at around $40 a barrel, opposition to the oil cuts is rising behind closed doors and talks of reviving old calls to review the size of the reductions have resurfaced, Iraq and OPEC sources told Reuters.
A senior Iraqi official with knowledge of the talks said there were differing views between the oil ministry and the prime minister’s office over whether to fully comply with the cuts or ask for an exemption for next year.
The oil ministry wants to ask for an exemption, the official, who declined to be identified, said, while officials in the prime minister’s office insist on compliance.
The disagreement revolves around Iraq’s current financial issues, the official added.
In May and June, Iraq had agreed to reduce its crude output by just over 1 million barrels per day, which would then ease to 849,000 BPD from July until the end of the year.
Iraq has continued as a member of the deal but has overproduced above its quota.