Iraq's Oil Production Becoming A Force

The director of Iraq's State Oil Marketing Organization said Feb. 4 that Baghdad will not consider participating in the Organization of Petroleum Exporting Countries export quota system until Iraq's oil production doubles to at least 4.5 million barrels per day (bpd). Iraq's resistance to being reintegrated into the quota system will make a number of key oil-producing states nervous, especially since the country has recently awarded oil development contracts that will aim to increase its production to an estimated 10-12 million bpd by 2025.

Iraqi State Oil Marketing Organization director Falah al-Amiri said Feb. 4 that Baghdad is not interested in participating in the Organization of Petroleum Exporting Countries' (OPEC) quota system until the country's oil production increases to at least 4.5 million barrels per day (bpd) from its current rate of 2.4 million bpd - essentially double what it is now. Al-Amiri said integrating Baghdad into the cartel's quota structure "is too premature," and that it likely will take about four years before Iraq reaches its output goal. Al-Amiri added that even then, OPEC member states would have to factor in a number of aspects before setting Iraq's export quota, such as the size of its oil reserves and its reconstruction requirements.

Though its production levels currently are low compared to other major OPEC powers, Iraq has refused to put any cap on its exports. Oil is Iraq's primary revenue source, and Baghdad has no intention of cutting itself off from any potential income for the greater good of the oil cartel. At the same time, OPEC member states are eager to see Iraq join the quota system because of the threat its energy potential poses to the group's ability to limit world oil supply.

When Iraq was last under OPEC's quota system in 1998, its limit was 1.3 million bpd, less than a third of 4.5 million bpd figure mentioned by al-Amiri. It will take several years before Iraq is able to increase production capacity to 4.5 million bpd, given that energy firms will need several years to develop the fields for which they have been awarded contracts, especially in the light of the fragile political and security situation in the country.

But the development work already under contract has the potential to raise output levels to 10 million to 12 million bpd by 2025, a level that rivals that of Saudi Arabia and Russia, the world's top two energy producers. That figure does not include known fields yet to be auctioned or fields that have not yet been discovered; given Iraq's 1980-88 war with Iran, its 1990 invasion of Kuwait and subsequent sanctions and the fallout from the 2003 U.S. invasion, there has been minimal oil exploration in the country since 1979.

In recent days, Iraqi Oil Minister Hussein al-Shahristani has said there are no plans for additional auctions in the immediate future, but one cannot rule out the possibility of deals outside the auction process, as was the case with the contracts given to a consortium led by Eni for the Zubair field and the group led by Exxon Mobil for West Qurna Phase 1 field.

Regardless of the pace at which its output capacity picks up, Iraq's oil fields, which are large, close to the surface and easy to develop, will ensure the country is free to produce as much as it wants for the next few years. The statement from the State Oil Marketing Organization is an indication that Baghdad is bound to resist any attempts to cap its production level.