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How Vulnerable Is Iraqi Oil Production?

Tsvetana Paraskova

Just as Iraq has increased its crude oil production and export capacity over the past decade, the recent flare-up of tensions in the Middle East suggest that OPEC’s second-largest oil producer could become a “vulnerable supplier,” the International Energy Agency (IEA) said in its January Oil Market Report on Thursday.

Early this month, the U.S. killed Iran’s most powerful and visible military leader, Qassem Soleimani, at the Baghdad airport in Iraq.  

Retaliation from Iran came several days later, when Tehran fired missiles at bases in Iraq that host U.S. troops, sending oil prices up by 4 percent for a few hours.

“Recent events have shown that Iraq is a potentially vulnerable supplier, just as its strategic importance has grown,” the IEA said in its report today.  

Over the past decade, Iraq has doubled its crude oil exports. Back in 2010, Iraq was exporting 2 million barrels per day (bpd), while now it ships 4 million bpd abroad, mostly through the world’s most important oil chokepoint, the Strait of Hormuz, which is in close proximity to Iranian waters and which Iran has repeatedly threatened to close.

India and China are Iraq’s largest oil customers, buying 1 million bpd of Iraqi oil each, while Europe also receives some 1 million bpd. The U.S. also buys oil from Iraq, with U.S. imports averaging 337,000 bpd in January-October 2019, the IEA said, citing data from the U.S. Energy Information Administration.

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Currently, Iraq is pumping more than its quota under the OPEC+ production cut deal and hasn’t complied with the agreement in any of the previous months and years.

However, if Middle East tensions persist for longer, Iraq may not be able to increase its production capacity in the medium term as it has planned, according to the IEA.

“In the medium term heightened security concerns might make it more difficult for Iraq to build production capacity. In turn, this could make it more difficult to ensure there is sufficient spare production capacity to meet rising global demand in the second half of this decade,” the agency said.

By Tsvetana Paraskova for Oilprice.com

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