OPEC fears that its grip on the global supply of oil is being threatened by the rising output of Iraq's oilfields and the prospect of billions of dollars of multinational investment in the world's leading untapped oil resource.
Iraqi oil exports in February were at their highest in 20 years, at an average of 2.08 million barrels per day, and the country plans to lift that to 2.15mbpd for the rest of the year.
According to the International Energy Agency, oil output from the country’s ageing infrastructure rose by 115,000bpd to 2.54m - the biggest single contributor last month to world oil-supply growth.
Moreover, Iraq is starting to worry OPEC, whose members meet on Wednesday in Vienna to review production quotas.
The relatively peaceful conduct of the Iraqi election and the signing of a clutch of contracts with foreign multinational companies, including BP, Shell and ExxonMobil, raises the prospect of a surge in Iraqi oil output over the next few years.
OPEC is expected to agree to maintain its official output at existing levels, but behind the scenes there is concern. Iraq has been suspended from the operation of OPEC quotas since 2003 amid war and civil and political chaos, but the cartel now needs to bring its wayward child back into the fold.
“There is only one issue, but it’s a tsunami: Iraq,” Leo Drollas, of the Centre for Global Energy Studies, said. With enough investment, the country has the potential to double or even triple its production. “If (Iraq) enjoys a period of stability, it could have a major destabilising effect on OPEC and the oil price.”
A continuing rise in Iraqi output, just when the IEA is predicting nil growth in demand from Western oil consumers, would not be welcomed by OPEC members.
The cartel believes that high oil prices are here to stay and many members, including the hawkish nations of Iran and Venezuela, need the present price of $US70 to $US80 per barrel to bolster flagging economies and social-support systems.