Iraq’s PM and oil chiefs face up to 7 million barrel question

• Expansion strategy unveiled in US
• Hormuz reliance remains acute
• Export infrastructure delays

Iraq has revealed ambitious plans to reshape its oil sector. The country’s new prime minister, Ali Al Zaidi, announced major investments during a trip to Washington last week.

Al Zaidi also told US oil executives that Baghdad aims to raise crude production to 7 million barrels per day in the next three years and to revive export pipelines through Turkey and Syria.

About 50 agreements and memoranda of understanding were signed on the trip, with a total value of more than $60 billion. Oil dominated the deal-making.

However, experts are sceptical that Al Zaidi can achieve the 7 million bpd target, which represents an increase of almost 60 percent from pre-war production.

The challenges faced by the banker-turned-businessman, who took power in May, include a lack of export capacity, domestic challenges and, ultimately, a continuing reliance on the disrupted Strait of Hormuz.

Iraqi leaders have been prone to “irrational exuberance” in the past when setting oil production targets, said Raad Alkadiri, a risk expert and managing director of advisory group 3Ten32 Associates, who points out that a former Iraqi oil minister said in 2009 that the country’s output would reach 12 million bpd by 2020.

“Iraq’s track record in terms of being able to expand capacity isn’t that great and its periods of optimism about investing in upstream projects have tended to be followed quite quickly by periods of stark reality and a struggle to implement those projects,” Alkadiri said.

The International Energy Agency believes Iraq could sustainably produce 4.9 million bpd.

Before the US-Iran war broke out on February 28 its output was 4.5 million bpd, of which 3.6 million bpd was exported – though the conflict has cut that dramatically.

The vast majority of its exports rely on the Strait of Hormuz. About a fifth of global oil supplies – or 20 million bpd – crossed the waterway each day before the war.

Al Zaidi had spent several weeks before his US trip calling for Iraq to be able to increase its oil production. He has urged the Organization of the Petroleum Exporting Countries to raise the quota that limits its output – set at 4.41 million bpd under an agreement struck in 2022 that aimed to raise oil prices.

Rumours that it would follow in the footsteps of the UAE and leave the alliance entirely, however, were swiftly quashed.

The prime minister signed two deals with US energy major Chevron to grow production in Iraq alongside local companies, while another Texas giant ConocoPhillips agreed to buy a 42 percent stake in a BP subsidiary that is helping to redevelop and optimise four oilfields in the northern Kirkuk region.

Export infrastructure

Hiking production is only one part of the mix. Iraq uses about 1.1 million bpd domestically and, however much it pumps, the majority must be sent elsewhere. The country has little storage capacity and a ceiling on exports that is unlikely to change quickly.

“Reaching 7 million bpd faces substantial headwinds and seems extremely optimistic,” said Mercedes McKay, senior upstream analyst at data and research group Energy Aspects. “Export infrastructure is a binding constraint.”

Most oil exits the country via Basra, which has an exporting capacity of about 3.3 million to 3.4 million bpd, while a pipeline from Kirkuk to Ceyhan in Turkey runs at around 200,000 bpd.

Turkey has said it will allow this to rise to 750,000 bpd, though a formal deal has yet to be signed. In the long term this pipeline is expected to be expanded and have a maximum capacity of 2.5 million barrels. This may not all be used by Iraq, however. Other countries including Kuwait are seeking their own export routes that bypass Hormuz.

Iraq and Syria also plan to rebuild a damaged pipeline that will run to the Mediterranean and will be able to transport 2 million bpd. This deal, too, was struck on Zaidi’s trip to the US.

Whether these could help Iraq reach 7 million bpd by mid-2029 remains in doubt. Pipelines take years to build, McKay said, and “meaningful increases [in exports] would likely take years to materialise”.

Domestic roadblocks also remain. Oil reservoirs in southern Iraq need large amounts of water injected into them to maintain pressure, but a Common Seawater Supply Project designed to deliver this only broke ground recently and is not expected to be in operation until the end of the decade, McKay added.

“Unlike the Gulf countries, Iraq’s infrastructure at times struggles,” said Renad Mansour, deputy director of the Middle East and North Africa programme at think tank Chatham House.

“There’s still a lot of technical glitches, storage capacity is a problem and fundamentally on the political side the challenges of corruption and competing elites really impacts Iraq’s ability even on the technical side to export more.”

Zaidi launched an anti-corruption campaign soon after taking office. Dozens of officials have been arrested including Adnan Al Jumaili, the former deputy oil minister for refining affairs.

But political and technical change will not come overnight – and the Hormuz question remains.

Tom Barrack, the US ambassador to Turkey and special envoy to Iraq and Syria, said last week that the agreements signed during Zaidi’s trip would allow the strait to become an “afterthought”. Experts are not so sure.

“Production and exports could increase by a few hundred thousand barrels per day in the short term [over pre-war levels], assuming exports through the Gulf are freely possible,” said Robin Mills, chief executive of consulting firm Qamar Energy and an AGBI columnist.

“If the constraint in Hormuz remains, then Iraq’s production will be correspondingly limited.”

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