Iraq and Kuwait face tougher oil restart than Gulf neighbours
- Well shut-ins rife as storage brims
- Geology and ageing gear hamper flows
- Damage puts future production at risk
Repeated shut-ins of older oilfields mean Iraq and Kuwait are likely to face challenging returns to full crude production after months of disruption during the US-Iran war, analysts say.
Both countries have been forced to curtail exports following attacks on tankers in the Strait of Hormuz, the world’s most critical chokepoint for energy supplies.
This has forced them to fill storage tanks and shut in, or temporarily stop, production at oil wells.
But a large part of Iraqi and Kuwaiti crude production comes from mature fields that require water injections to maintain pressure and have been operating in some cases since the 1930s.
“This could complicate efforts to restart shut-in production and even lead to a slower recovery in oil output in both countries,” said Hamad Hussain, senior climate and commodities economist at Capital Economics, a London-based consultancy.
“In addition to this, ageing infrastructure in Iraq will add to the technical challenges of restoring oil production to pre-war levels.”
Damage caused by shut-ins can also put future production at risk, while restarts can be expensive and take weeks to execute.
Kuwait produced around 2.6 million barrels per day of oil before the conflict began on February 28, according to the International Energy Agency.
After sharp falls early in the conflict, by June this had recovered to 1.4 million bpd – implying shut-ins of as much as 1.2 million bpd.
Iraq normally produced 4.3 million bpd before the war. Its output stood at just under 2 million bpd in June, which could mean around 2.3 million bpd was offline.
Experts warn there could be effects on the oilfields that will further complicate both states’ efforts to rebuild infrastructure damaged by Iranian drone and missile strikes.
“This constant shutting and reopening of the wells will definitely impact the fields’ recovery timeline,” said Rahul Choudhary, vice president of upsteam research at Norwegian consultancy Rystad Energy.
Few bypass options
Iraq and Kuwait are in difficult positions because they have little storage and limited ways to bypass Hormuz.
Iraq has a pipeline that runs to the Turkish port of Ceyhan, which has transported just 200,000 bpd of oil throughout the war. The two sides signed a deal this month to raise this to 750,000 bpd – while Baghdad is exploring a range of pipeline projects to decrease its reliance on the waterway as part of an investment drive by prime minister Ali Al-Zaidi.
Kuwait has no external pipelines and may need to build an extension to another network if it seeks a permanent workaround.
Other countries have been able to bypass Hormuz with pipelines to ports outside the waterway.
“For countries like the United Arab Emirates and Saudi Arabia, it is easier because they do not completely shut down the wells,” Choudhary said.
“But in countries like Iraq, you shut down a part of the field completely because there is no storage or no export option available.”
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Saudi state-backed energy giant Aramco expects to restore production rapidly once conditions allow. Earlier this week Aramco president and chief executive Amin Nasser said the company could reach pre-war output levels within days and its maximum amount of 12 million bpd “within three weeks” if required.
The kingdom has relied on sending more oil to its Yanbu port on the Red Sea, though the use of this route has been complicated by attacks launched by Iran-backed Houthi rebels on tankers passing through the Bab al-Mandab strait.
Neither Iraq nor Kuwait has said publicly that they are experiencing difficulties with restarts.
The Iraqi oil ministry has reportedly said it expects to recover to more than 3 million bpd within two months. Earlier in the conflict a managing director at Kuwait Petroleum Corporation said the country could revisit pre-war levels within three months – however, this was before a string of attacks on the country in July.
Xavier Tang, head of Middle East research at cargo-tracking group Vortexa, is optimistic about the pace of recovery.
“Even though there have been crude production shut-ins, returning to 80 percent of pre-conflict production levels in a few months shouldn’t present major difficulties,” Tang said.