Oil price uncertainty in 2025 budget threatens new crisis

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[size=52]Oil price uncertainty in 2025 budget threatens new crisis[/size]

[size=45]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 at $70 per barrel in next year’s budget, which has raised concerns among oil and economic experts, especially since Iraq sells its oil at a price lower than the global price.
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.
Oil expert Govind Shirwani says, “The Zionist strike on Iran clearly revealed the existence of an agreement between the major powers not to target oil facilities, which means that they are safe from the mutual conflicts occurring in the region, which makes the energy market stable and will not deteriorate as some pessimistic scenarios have said.”[/size]
[size=45]Sherwani expects “oil prices to drop slightly in the coming period, despite the fact that geopolitical factors are 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,” noting that “Iraqi crude prices are always sold about $3 less than Brent, which means that their prices will remain high and above $70, which will not create any problems in the general budget, but if they fall below this number, this will lead to an increase in the financial deficit.”
He adds another factor to maintain the rise in oil prices, which is “the decision of the OPEC Plus alliance to reach voluntary cuts that end on December 1, and if the cuts continue, this will keep prices from falling, and if the cuts are extended, this may work to raise prices further, because that period will accompany the winter season, during which oil prices usually rise due to high fuel consumption and its use for heating, especially in European countries.”
The Prime Minister's economic advisor, Mazhar Mohammed 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 is currently $74 this year, stressing that oil will remain stable in the next budget at $70.
Brent crude prices reached $74 yesterday evening, which is the 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 Iraq's budget.
For his part, economic expert Diaa Al-Mohsen explains that “Iraq is a rentier country that relies on oil revenues to finance its public expenditures, as is known, which constitute more than 90 percent of total public revenues. However, the general budget suffers from a large deficit exceeding $40 billion annually, which represents more than 20 percent of the budget.”
Al-Mohsen stresses that “successive governments must seriously consider diversifying their revenues and not rely entirely on oil to finance the budget. In addition, most public expenditures are operating expenses, while investment expenditures are modest compared to operating expenses, taking into account that the deficit is covered by not implementing most investment projects, which exposes the national economy to severe shocks.”
Iraq relies 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.
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.
In addition, energy expert Ramadan Hamza explains that “this situation is unstable and not reassuring, especially if Iran responds to the Israeli attack, and we are approaching the winter season, during which there is an increasing demand for oil, which increases its prices in global markets, but if there is no development in the region, oil prices will maintain this current stability.”
Hamza adds that “Iraq’s problem 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,” indicating that “prices will remain fluctuating between $70-80 per barrel, especially in light of the political stability and Iran’s failure to respond, but if it responds, we will face major repercussions, which may include the closure of the sea straits, which will greatly affect prices.”
Iraq, the second largest oil producer in the Organization of the Petroleum Exporting Countries (OPEC), exports about 85 percent of its crude oil through ports in the south of the country, but the northern route via Turkey still represents about 0.5 percent of global oil supplies.
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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