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Iraq eyes return to Opec quota system

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Iraq has for the first time begun preparing for a return to the Opec production quota system, in a shift of policy that reduces the prospect of oversupply and lower prices in global oil markets.

Iraq, whose oil industry has recovered rapidly since the US-led invasion a decade ago, is expected to be one of the largest sources of supply growth in the oil market over the next decade.

With North American output also rising rapidly due to the shale revolution, some analysts have raised the prospect of a supply glut unless Opec, the cartel of oil exporters, can control production.

Until now Iraq has insisted that other members of the producers’ group, which controls around a third of the world’s oil production, should accommodate its growth. But speaking to reporters on Tuesday, Dr Hussain al-Shahristani, Iraq’s deputy prime minister for energy, said the country had started preparing the ground for a return to the quota system.

“Discussions would have to be held at Opec when we reach four to 5m barrels of production capacity,” he said. “We are preparing a proposal for calculating quotas for Opec members and criteria to be used for that.”

Mr Shahristani said other Opec members were aware of Iraq’s work, and would have their own proposals.

Opec produces around 30m barrels a day of crude with each member assigned a target, although these are not disclosed to the public. Iraq has been excluded from these quotas for many years because of the impact of sanctions and war on its oil industry.

However, Iraqi production has recovered rapidly in recent years leading to pressure within the cartel for Baghdad to adopt production discipline as well. Iraq currently produces 3m barrels of crude oil a day, second only to Saudi Arabia within Opec.

The comments from Mr Shahristani mark a more conciliatory tone that sets the stage for tough negotiations within Opec, where Iraq has been competing with Saudi Arabia for market share in Asia and particularly China.

Iraq is aiming for just over 4m barrels a day of production by the end of this year, although analysts are sceptical. Mr Shahristani said this target did not mean that discussions would necessarily have to start this year. Recent weeks have seen leading forecasting bodies raise their estimates for global oil demand, due to strong consumption in the US.

For the time being we are working on the assumption that there will be room for Iraqi crude without squeezing anyone seriously

Mr Shahristani said: “For the time being we are working on the assumption that there will be room for Iraqi crude without squeezing anyone seriously.”

But if Iranian production were to increase significantly this year as a result of discussions on its nuclear programme, Mr Shahristani said that would “obviously” expedite discussions within Opec.

Analysts reckon growth in Iraqi exports this year could be challenged by problems with storage facilities on the Faw peninsula in southern Iraq.

Bad weather has repeatedly forced BP to cut back production at its giant Rumaila oilfield.

Mr Shahristani acknowledged: “Curtailment due to bad weather could … cause a production loss.”

Separately, Mr Shahristani said Iraq planned to start importing natural gas from neighbour Iran as soon as April despite continuing western sanctions against Tehran’s energy sector. Mr Shahristani said his government had explained to the US that Iraq had no other way of providing electricity for its population.

“We explained that getting gas for our power plants is not a luxury.”


6 Comments on "Iraq eyes return to Opec quota system"

  1. robertinget on Wed, 29th Jan 2014 1:23 pm 

    Iraq is still selling the myth it is a unified state. With Northern Iraq selling exclusively to Turkey, Kurds can also expect NATO support in the event events in the South get even nastier.

    OPEC is a mess politically today, There are all sorts of alliances within alliances, Palace Intrigue, actual proxy warfare, soon perhaps, degenerating into hot, two on one confrontations. Paranoia, distrust, disinformation, rumour, are OPEC currency.

    In the past KSA maintained enough reserve production to, it said, ‘stabilize’ markets. With Saudi production almost flat out for ten years, even the most robust fields are
    beginning to fray. Iraq, Iran, OTOH have most certainly not been over stressing EXISTING fields over recent history.
    Importantly, both Iran and Iraq have lagged exploration.

    AS for the fiction OPEC will help EU and US economies by holding oil prices in check, we must ask ourselves how much love exists for the US in Tehran or Baghdad when China and India, never threatening, are now ready and waiting
    with much needed credits, gold, cash.

  2. Northwest Resident on Wed, 29th Jan 2014 3:40 pm 

    The history of Iraq in relation to its oil is a long and bloody list of foreign interventions at the hands of U.K. and America. It is amazing to contemplate the lives that have been lost, the lies that have been told and the international intrigues that have been played out — all over that “liquid gold”. Do a quick scan of Iraq’s oil history, and it becomes obvious that human greed and quest for power have lead us to the brink of worldwide catastrophe.

  3. Northwest Resident on Wed, 29th Jan 2014 4:11 pm 

    Here’s another “slant” on the oil in Iraq and the history associated with it.

    Imagine all competing nations of this world standing in a circle around what amounts to “The Ring of Power” — that being the vast untapped oil reserves in Iraq. Whoever grabs that ring and holds it wins absolute power and wealth, and firmly grips control of his own destiny, as well as a significant amount of control over the other nations of the earth. For a moment, each nation stands and looks at that Ring of Power, lusting after it. But only a few of the nations are strong enough and in a position to grab that ring. Those few nations know who they are, and they realize that not only will vast riches and power be lost if they fail to grab that ring for their own, but that the nation that does grab the ring will hold future power and control over them.

    It is a brutal world, ruled over by humans who have forever fought and killed each other to achieve control over resources and their own destinies. The fight over control of Iraq’s oil was and is no different. In the end, it came down to “grab it now while you can, or lose it to somebody else who will then gain significant advantage over you”. If it was a game on a Risk board, my strategic move would be to grab Iraq immediately and under any circumstances possible. But that “game” translated into real life involves a lot of people dying and brutal maneuvering — but the need to “win the game” remains the same.

    America and the U.K. did what they had to do. They lied us into the Iraq war, they manipulated public opinion with propaganda and lies skillfully packaged, and they took control of Iraq’s oil. If they hadn’t done it, then somebody else would have. And that’s just the way it is.

  4. DC on Wed, 29th Jan 2014 9:27 pm 

    Iraq’s oil production never ‘recovered quickly’. It languished for many many years. Partly by design, partly by the situation on the ‘ground’. IE US terrorists running around shooting anything that moved. To me, it sounds like FT is worried there will be ‘too much’ oil, not a lack of ‘production’ as such. Now since the US, in the last 10+ years, has managed to keep some of Irans, pretty much ALL of Iraqs, and all of Libyas(more or less) oil off the market, one has to wonder, what is going here?

    Reading between the lines, it seems the real worry is too much oil could end up floating around, which would of course, depress prices. That would have the effect of mankind all those expensive deep water, shale and tar-not-oil operations a lot less profitable. It would also have the unwelcome effect(to the US anyhow) of giving a nice boost to Chinas economy by lowering their fuel bills.

    None of this means PO, and depletion are no longer ‘real’, of course they are. Demand destruction is still going on, regardless of what the price of oil is. However, this article all but admits that keeping prices high, even though they are making the economic situation worse for most of the OECD, are the preferred state of things.

  5. Northwest Resident on Wed, 29th Jan 2014 9:46 pm 

    “Now since the US, in the last 10+ years, has managed to keep some of Irans, pretty much ALL of Iraqs, and all of Libyas(more or less) oil off the market, one has to wonder, what is going here?”

    DC, I read a very detailed and informed article a while back that went into detail on the decisions and efforts made by the U.K. and U.S.A. to keep Iraq’s oilfields from developing, going all the way back to pre-WWII.

    One possible explanation for keeping all that oil off the market is, as you point out, to “save it for later” — in other words, why put it on the market now and drive down the price (and drive up the consumption) of oil, especially given the fact that we’re quickly running out of oil that is both economically and technically feasible to extract.

    Another explanation might be that “TPTB” (oil companies, military, political elite, etc…) see a collapse coming, and want to save enough oil for post-collapse to rebuild something. That makes sense to me, because that’s what I would do.

  6. Nony on Thu, 30th Jan 2014 1:11 am 

    I’ve been reading up on peak oil (and shale) like crazy for the last few days. Getting up to speed.

    I really like the oil drum (closed) and this site seems like a substitute.

    One thing I’m reading is the Red Queen article from Sep 2012. I can’t follow all the analysis, but the author predicted max Bakken production as 6-700,000 bbd. In November 2013, it was already at 950,000.

    Has the author got a renewed peak estimate and an explanation of why we are seeing more than he expected? (i.e. that the queen is really moving forward, not staying still)?

    And please, I really don’t mean this as some kind of callout and really have just been reading (funemployment) for last few days.

    I just thought a post mortem (or update or whatever) would be interesting.

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