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Crude Economics
Iraq Has No Interest in Cutting Oil Output

We’re just weeks away from OPEC’s semiannual summit in which the cartel’s petrostates are expected to finalize a plan to cut production for the first time since the aftermath of the 2008 financial crisis, and one of its biggest members doesn’t look like it wants to play ball. Bloomberg reports:

The group’s second-largest producer should be exempted from cutting production because it’s embroiled in a war with Islamic militants, Oil Minister Jabber Al-Luaibi said Sunday at a news conference in Baghdad…“We are with OPEC policy and OPEC unity,” Al-Luaibi said. “But this should not be at our expense.” A meeting in Algeria last month of the group’s 14 members stretched to seven hours as Iraq argued over the level of production that should be used as a baseline for setting quotas.

It’s somewhat tricky trying to nail down exactly how much Iraq is currently producing. Baghdad claims to have hit 4.78 million barrels per day (mmbpd), while OPEC’s secondary sources believe that number to be closer to 4.45 mmbpd. Either way, Iraq’s output place it second only to Saudi Arabia in total output within OPEC, but Baghdad clearly isn’t keen on constricting its supply. Instead, as Reuters reports, it thinks it ought to be producing double its current supply, putting it somewhere near the same level as the Saudis:

Falah al-Amiri, head of Iraqi state oil marketer SOMO, added that Iraq’s market share had been compromised by the wars it has fought since the 1980s. “We should be producing 9 million (barrels per day) if it wasn’t for the wars,” he said.

Iraq designs on increasing its production aren’t unique amongst OPEC members, either. Iran is approaching pre-sanctions output levels, but it has always had ambitions beyond merely returning to where it once was. Libyan exports have slowed to a trickle in the wake of its civil war and Gaddafi’s death, and Tripoli intends to iron out those supply disruptions; similarly, Nigeria is ready to increase its own output.

If OPEC decides to cut—and that’s a big if—it’s likely going to be up to the Saudis to do most of the hard work. But the fact that the cartel’s second-biggest producer is already clamoring for an exemption illustrates just how little consensus there is within OPEC. Everyone wants to maximize their market share while selling their crude for the highest possible price, but unfortunately for these petrostates, those are opposite aims.

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