In numbers: Iraq’s oil revenue conundrum
Despite crude production growth remaining low, Iraq has been able to develop its ailing oil infrastructure
Despite significantly increasing exports in recent years, low oil prices since late-2014 until about Q3 2017 have impacted Iraq’s hopes for higher revenues, according to APICORP. With foreign reserves of less than $50bn and dependence on crude exports for 99% of the government budget, the slump in the oil price has put significant strain on public spending and negatively impacted oil sector development.
The country will have to rely on additional exports for higher revenues, thus requiring significant support from IOCs to increase production capacity. Given that many of them were frustrated by the government’s past inability to make timely payments, it is no surprise that there is an industry-wide trend to reconsider future involvements in Iraq, aided by the fact that neighbouring Iran – with the exception of political risk – offers more favourable contracts for fields with similar profiles. On the positive side, the government is working on solutions to some of the major obstacles to capacity growth and has made progress in de-bottlenecking infrastructure and expanding export capacities.
A significant portion of recent growth can be attributed to improvements in crude quality. As part of its strategic decision to produce more crude, the country began drilling a heavier crude mix from the Mishrif reservoir to blend with its Basra Light, triggering a discount within the Basra Light formula. The split into Basra Light and the new 23.5 API Basra Heavy made sense given the upward trajectory in higher volumes of the grade from new production, whilst at the same time preserving the quality of the 29.7 API Basra Light. However, more investments are needed to achieve the required levels of output growth. Securing more natural gas and progressing with water projects will be instrumental in the recovery and production of additional crude from southern Iraq.