Expectations fade for more gains in Iraqi oil output

Sept. 23, 2016
Expectations for further gains in Iraqi oil production have fallen victim to the country’s deteriorating finances and struggle with Islamic State militancy.

Expectations for further gains in Iraqi oil production have fallen victim to the country’s deteriorating finances and struggle with Islamic State militancy.

In a January report anticipating new financial assistance, the International Monetary Fund projected Iraqi oil output in 2020 at 5.7 million b/d.

A follow-up report in July put the number at 4.4 million b/d--only 200,000 b/d above the average rate it expects this year.

“Increasing oil production as previously envisaged would require a doubling of oil investment, which the [Iraqi] authorities recognize is infeasible given the fiscal outlook,” IMF explained.

In addition to lowering its expectations for oil output and exports, IMF trimmed its projection for gross domestic product, citing further weakening of the nonoil economy.

The organization nevertheless approved a $5.34-billion, 3-year loan under strict conditions that include payment of overdue obligations to international oil companies.

Arrears had climbed to $4.67 billion at the end of March from $3.556 billion in December. IMF wants Iraq to clear those accounts by the end of this year and meet all obligations to the oil companies quarterly as stipulated in service contracts.

The new loan follows a “rapid financing instrument” disbursement of $1.24 billion by IMF in July 2015. It broadly requires:

Managing external pressures, such as by maintaining the exchange-rate peg to the US dollar, removing exchange restrictions, and fighting money-laundering and terrorism finance.

Implementing fiscal consolidation while protecting the poor.

Strengthening public financial management and curbing corruption.

Monitoring financial risks to preserve financial-sector stability.

This is a tough program for a politically fractious country with a 23% poverty rate, 4 million people displaced by violence, and 10 million people--27% of the population--needing humanitarian help.

Under difficult and dangerous conditions, the Iraqi oil industry has raised production to its current level from 3 million b/d in 2013.

But a fiscal trap aggravated by low oil prices, persistent violence, and political dysfunction will prevent the further gains the country needs and has the geology to achieve.

(From the subscription area of www.ogj.com, posted Sept. 23, 2016; author’s e-mail: [email protected])