Oil prices in the 2025 budget... Will they put Iraq in a crisis?

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[size=52]Oil prices in the 2025 budget... Will they put Iraq in a crisis?[/size]

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2024-10-27
The debate over the price of oil in the budget has returned to the forefront again. In light of the regional political circumstances and the failure of global prices to rise to record levels, a government advisor revealed that the price of oil will remain in next year’s budget at $70 per barrel, which has raised concerns among oil and economic experts, especially since Iraq sells its oil at a price lower than the global price.[/size]
[size=45]While experts confirmed that expectations regarding prices are unclear, and that they could decrease if there is no major escalation after the Israeli strike on Iran, they indicated that its price will remain between $70-80 per barrel, unless Tehran responds and uses the straits, which will raise prices significantly and quickly.[/size]
[size=45]Oil expert Govind Sherwani said in an interview with “Al-Alam Al-Jadeed” that “the Zionist strike on Iran clearly revealed the existence of an agreement between the major powers not to target oil facilities, and this means that they are safe from the mutual conflicts that occur in the region, which makes the energy market stable and will not deteriorate as some pessimistic scenarios have said.”[/size]
[size=45]“Oil prices are expected to drop slightly in the coming period, despite the geopolitical factors still playing a role, in addition to the circumstances of major consumers such as China and America, which may maintain the price of Brent crude at $75 or slightly more,” Sherwani said, noting that “Iraqi crude prices are always sold at about $3 less than the price of Brent, which means that its prices will remain high and above $70, which will not create any problems in the general budget, but if it drops below this number, this will lead to an increase in the financial deficit.”[/size]
[size=45]Another factor that will keep oil prices high is the OPEC Plus alliance’s decision to reach voluntary cuts that end on December 1. If the cuts continue, this will keep prices from falling, and if the cuts are extended, this could further raise prices, because that period will coincide with the winter season, when oil prices usually rise due to high fuel consumption and use for heating, especially in European countries.[/size]
[size=45]The Prime Minister's Advisor for Economic Affairs, Mazhar Muhammad Salih, confirmed yesterday that the three-year budget estimated the price of a barrel of oil at $70, and that the average price of a barrel of oil in 2023 was $84, while it currently stands at $74 this year, stressing that oil will remain stable in the next budget at $70.[/size]
[size=45]Brent crude prices reached $74 yesterday evening, a price that has been stable for days, after rising following the assassination of the Secretary-General of the Lebanese Hezbollah, Hassan Nasrallah, and the Iranian strike on Israel, early this month, to about $80 per barrel, after its prices during the period preceding these events were around $65, and warnings have been circulated of its decline, which would affect the Iraqi budget.[/size]
[size=45]For his part, economic expert Diaa Al-Mohsen explained, during an interview with “Al-Alam Al-Jadeed”, that “Iraq is a rentier country that depends on oil revenues to finance its public expenditures, as is known, which constitute more than 90 percent of total public revenues. Despite this, the general budget suffers from a large deficit exceeding 40 billion dollars annually, which represents more than 20 percent of the budget.”[/size]
[size=45]Al-Mohsen stressed that “successive governments should seriously consider diversifying their revenues and not rely entirely on oil to finance the budget. In addition, most public expenditures are operating expenditures, while investment expenditures are modest compared to operating expenditures, taking into account that the deficit is covered by not implementing most investment projects, which exposes the national economy to severe shocks.”[/size]
[size=45]Iraq depends entirely on oil revenues, despite the existence of items in the federal budgets to enhance non-oil revenues, such as border crossings and tax collection, but all of them were not implemented properly, and their revenues remained small and do not constitute a significant percentage.[/size]
[size=45]It is noteworthy that OPEC+ decisions have been heading towards reducing production for more than two years, and last June, it was agreed to extend production cuts by 3.66 million barrels per day until the end of 2025, with another 2.2 million barrels per day of voluntary cuts being gradually reinstated starting in October of this year.[/size]
[size=45]In addition, energy expert Ramadan Hamza explained, during an interview with “Al-Alam Al-Jadeed”, that “this situation is unstable and not reassuring, especially if Iran responds to the Israeli attack. We are also approaching the winter season, during which there is an increasing demand for oil, which increases its prices in global markets. However, if there is no development in the region, oil prices will maintain this current stability.”[/size]
[size=45]“The problem with Iraq is the strategy followed by the Ministry of Oil, which is not profitable in terms of production or even in terms of developing oil fields, and Iraq is still weak in its strategic position,” Hamza added, indicating that “prices will remain fluctuating between $70-80 per barrel, especially in light of political stability and Iran’s failure to respond. However, if it responds, we will face major repercussions, which may include closing the straits, which will have a significant impact on prices.”[/size]
[size=45]Iraq, OPEC's second-largest oil producer, exports about 85 percent of its crude oil through ports in the country's south, but the northern route via Turkey still accounts for about 0.5 percent of global oil supplies.[/size]
[size=45]It is noteworthy that Iraq's budget for this year exceeded 226 trillion dinars, after it was approved by Parliament, which is higher than last year's budget of 198 trillion dinars.[/size]
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