Iraq's treasury hangs in the balance... Will oil cuts stifle the economy?

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[size=52]Iraq's treasury hangs in the balance... Will oil cuts stifle the economy?[/size]

[size=45]Iraq relies heavily on oil exports as its main source of income, and cutting oil production could cripple and stifle its economy.[/size]
[size=45]Cutting production may also help stabilize global oil prices, which could provide some long-term benefits if prices rise enough to replace the lost volumes.[/size]
[size=45]The situation depends largely on how global markets respond to the production cut and the economic decisions taken by the government to meet this challenge.[/size]
[size=45]Iraq is one of the founders of the Organization of the Petroleum Exporting Countries (OPEC) and is a key member of the OPEC+ group, which makes it committed to implementing the instructions and decisions issued by it, whether related to increasing or decreasing production, especially since these decisions are taken unanimously.[/size]
[size=45]The financial advisor to the Prime Minister, Mazhar Muhammad Salih, said, “The latest rates of Iraq’s daily crude oil production capacity amount to about 4.5 million barrels per day, and the agreed-upon share to be reduced from Iraq’s production within the recent decisions of the Organization of the Petroleum Exporting Countries (OPEC+) is to adopt a reduction share for Iraq of about 350,000 barrels per day, i.e. adhering to production of 3.9 million barrels per day, in order to maintain financial revenues for OPEC+ countries, determined by an average production price per barrel of oil of no less than $85 or close to that.”[/size]
[size=45]He added, “A drop in oil prices by one dollar per day will expose our country’s annual resources to a loss of nearly 1.5 billion dollars annually from the total calculated value of oil revenues denominated in foreign currency, and since OPEC decisions are decisions taken unanimously, Iraq is one of the important oil-producing countries in the report of the unity of this consensus, as it is the second largest oil-producing country after Saudi Arabia.”[/size]
[size=45]He added, “The Iraqi oil policy is flexible in benefiting from the new specific production capacity after the reduction, by maintaining the export capacity first, and controlling the optimal proportions of the needs of local refineries for crude oil and the capacity of oil reserves second, and with accurate quantitative and accounting compatibility, without leaving direct or harmful financial effects on public revenues.”[/size]
[size=45]For his part, economic affairs expert Nabil Al-Marsoumi says, “The production quotas in OPEC Plus are calculated on the basis of the production line achieved in 2018, and therefore Iraq’s production quota has become 4.650 million barrels per day, compared to 11 million for each of Russia and Saudi Arabia.”[/size]
[size=45]He added, "Iraq has committed to the mandatory reduction taken in OPEC Plus two years ago, by about 220,000 barrels per day to support oil prices, and then Iraq agreed to voluntarily commit to two reductions of about 430,000 barrels within only eight countries out of 23 countries in OPEC Plus."[/size]
[size=45]He explains that “Iraq should not have agreed to the two voluntary cuts, especially since Iraq needs to produce more than its production quota, which has decreased to only 4 million barrels per day (compared to 9 million for each of Russia and Saudi Arabia), in light of its large financial needs to cover the growing public spending.”[/size]
[size=45]He explained that “Iraq is supposed to demand that its oil production baseline be adjusted and increased to 5 million barrels, as the UAE did two years ago when it pressured OPEC Plus and eventually obtained an increase of 300,000 barrels per day to be added to the baseline production line.”[/size]
[size=45]Al-Marsoumi continues, “Iraq is currently unable to commit to its production quota, especially in light of Kurdistan’s production, which reaches 300,000 barrels per day and is calculated within Iraq’s production quota without its revenues being included in the general budget. If Iraq actually decides to be satisfied with its new production quota and compensate for the excess production, then Iraq will face a shortage in its oil revenues, which will create new financial difficulties.”[/size]
[size=45]The Organization of the Petroleum Exporting Countries (OPEC) announced last Thursday that Iraq had taken clear and decisive steps to compensate for the excess quantities of oil produced, and gave assurances that it would achieve full compliance after that.[/size]
[size=45]The mandatory reduction in crude oil by members amounts to approximately 3.66 million barrels per day, continuing until the end of this year, while the voluntary reduction amounts to 2.2 million barrels per day, continuing until next June.[/size]
[size=45]The Committee welcomed the pledges of Iraq and Kazakhstan to achieve full conformity and compensate for excess production, and also welcomed Russia’s announcement that its voluntary adjustments in the second quarter of 2024 will be based on production rather than exports.[/size]
[size=45]The OPEC+ alliance decided in early November 2022 to oblige all members (22 countries) to reduce production, with the aim of maintaining the balance of the global oil market.
The mandatory agreement is added to another voluntary agreement of 2.2 million barrels per day, which began in early July 2023 and continues until December 2024, with the participation of 8 countries, led by Saudi Arabia and Russia. However, the alliance announced on June 4 the extension of the agreement to reduce oil production by 3.8 million barrels per day until December 2025, instead of the date scheduled for the end of this year.[/size]
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