Iraq’s Petroleum: Challenges of Managing the Plenty

Many oil professionals questioned the feasibility, attainability and sustainability of such a plateau production at such a pace. Iraq in cooperation with and partial financing from the World Bank commissioned two years ago an international consulting company (Booz & Co) to conduct a study on the matter. Accordingly, the authorities, as one 7 May 2013, are finalizing the INES comprising three scenarios of 13 mbd, 9 mbd and 6 mbd with different plateau production periods. There are strong evidences suggesting Iraq would adopt the 9 mbd, and this obviously entails renegotiating all or most of the signed LTSCs. Actually, such renegotiations has begun with two contracts, WQ2 and Zubair, were concluded.

Significant part of oil would go for export and thus expansion of export capacities and diversification of export outlets become imperative to give Iraq more flexibility and security. For this purpose Iraq plans on enhancing the access to the Mediterranean, the Red Sea and Arabian Gulf commensurate with the three major markets for its crude: Asia, Europe and the Americas (Slide 8).

Increased oil production and export together with improved oil prices had contributed to enhance oil export revenues, which in turn led to an unprecedented scale of the annual state budgets. Expenditures almost doubled between 2009 and 2013 thus depending heavily on oil export revenues (Slide 10). Over these five years allocations for operating budget averaged to 68% (usually fully spent) with the remaining 32% for investment (actually partially spent). Budget allocations for “Energy” and for “Security and Defence” are the highest at the expense of other economic and social sectors. 2013 budget allocates 21.3% for energy and 14.2% for security and defence while the real economy sectors get much less with industry has 1.2% and agriculture has 1.9%.

With production capacity of 9 mbd or even 6 mbd this would generate very significant influx of petroleum export revenues and this could present the country with the challenges of properly managing such inflow of revenues.

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