Combined with expected rising global demand during this year’s second half, the loss of even one third of Iraq’s total production could trigger such a worldwide crude price increase, the June 17 issue brief said. It noted that exports from Iraq’s Kurdish north, which were as high as 209,000 b/d in 2009, effectively ceased on Mar. 2, contributing to 3 million b/d of total global supply outages.
“Nearly 100% of Iraq’s 2.5 million b/d of crude exports currently exit the country through its southern oil complex centered on Basra,” SAFE’s report said. “While the predominantly Shia south has remained relatively secure, political disintegration in Iraq along sectarian lines would add to the current oil price risk premium and the potential for significant upside would remain.”
While near-term price increases would be troubling, market implications in the long run could be a greater concern, it suggested. SAFE’s issue brief cited the International Energy Agency’s baseline forecast scenario for Iraq, which has production there growing from 3.3 million b/d in 2014 to nearly 6 million b/d by 2020 and 8 million b/d by 2035.
“Between today and 2020, the IEA expects Iraq to account for 60% of the increase in [the Organization of Petroleum Exporting Countries] crude oil production capacity,” SAFE’s report said. “After 2020, Iraq accounts for the majority of oil production growth within OPEC, is the major driver of crude oil production growth globally, and is effectively a necessary component to meeting rising global demand growth in an even modestly cost-effective way.”
SAFE Pres. Robbie Diamond said, “The situation in Iraq has the potential to inflict serious damage on the US and global economies. The short-term risk is of further violence and a damaging price spike. But the turmoil in Iraq contributes to a broader, long-term outlook of underinvestment, violence, and corruption in key oil producing countries, particularly within OPEC.”
Contact Nick Snow at email@example.com.