There is tension within OPEC, the organization of oil-exporting countries: after the departure of the United Arab Emirates, who could not tolerate the maximum production quota mechanism established by Saudi Arabia (which effectively leads the group), Iraq is now insistently requesting to produce more. All this latent discontent exploded with the war between the United States, Israel, and Iran, which slowed hydrocarbon trade in the Persian Gulf and, consequently, damaged the finances of countries most dependent on oil revenues and lacking alternatives to the Strait of Hormuz.
WILL IRAQ ALSO LEAVE OPEC?
For Iraq – one of the founders of OPEC and its second-largest producer – the war in the Persian Gulf has been an economic hardship as it forced the country to export little crude, earning fewer resources to support the public budget. That is why now, with the United States and Iran having reached a shaky agreement and the situation in the Strait of Hormuz having improved, Baghdad has begun to pressure for a larger production quota.
According to the Reuters agency, Iraq is “considering all available options if its OPEC quota is not significantly increased,” including possibly leaving the organization. The Emirates, as mentioned, left OPEC precisely because they wanted the freedom to sell as much oil as they wished.
If OPEC, after the Emirates, were to “lose” another major producer like Iraq, this could significantly undermine the group’s ability to influence crude prices through increasing or reducing supply relative to demand.
INTERNATIONAL INVESTMENTS
That freedom of movement would be useful for Iraq to capitalize on recent investment announcements by some foreign energy companies – such as the $25 billion allocated by British BP, $10 billion by French TotalEnergies, or commitments from American ExxonMobil and Chevron – which it needs to revive its oil sector and, consequently, its entire economy. However, the country faces pre-existing problems of political instability and infrastructural deficiencies that could complicate the recovery plans devised by Prime Minister Ali al-Zaidi (who, moreover, will meet U.S. President Donald Trump in Washington in July).
IRAQ’S PLAN
Iraq aims to raise its oil production to seven million barrels per day within a few years: an ambitious and perhaps unattainable goal, considering current capacity stands at 4.9 million barrels per day, according to the International Energy Agency.
The production quota set by OPEC for July is 4.3 million barrels per day. In February, before the war with Iran began, Iraq produced nearly 4.2 million barrels per day, dropping below 1.5 million in May: Baghdad lacks infrastructure that would allow it to bypass the Strait of Hormuz, a waterway often indispensable for Persian Gulf countries, as it connects the Gulf to the Gulf of Oman, providing crude oil access to the Indian Ocean and thus to international markets.
HOW DEPENDENT IS IRAQ ON OIL?
Given these circumstances, even if Iraq were to obtain an increase in its production quota from OPEC, its “technical” constraints might prevent it from exploiting the greater leeway.
However, Baghdad needs to sell oil because it is extremely dependent on it: last year, crude accounted for 88 percent of government revenues, according to World Bank data. This is the highest value among OPEC members, much higher than Saudi Arabia – often considered the quintessential “petro-state” – whose government revenues depended on oil for 55 percent of the total.
WHO WILL BE THE NEXT TO LEAVE OPEC?
Another country that might consider leaving OPEC is Venezuela, since after the deposition of former president Nicolas Maduro it has drawn closer to the United States, which now effectively controls its oil industry.
Despite good relations with Saudi Arabia, Donald Trump has often heavily criticized OPEC’s energy policies, accusing the organization – since 2018 – of artificially keeping crude prices high through production cuts. A weaker OPEC would also benefit the United States, which are already the world’s largest oil producers.
