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Iraq’s oil sector faces delays and reshuffle after elections

Iraqis go to the polls Saturday in a general election which could reshape its oil ministry and delay output expansion projects in OPEC’s second-largest member.

With no political bloc expected to win an outright majority, a coalition government could result in a change of oil minister. Iraq pumped an average of 4.42 million b/d in April according to the S&P Global Platts survey.

Major new oil and gas projects could face delays because of a potential change in cabinet and approvals, warn sources at international oil companies. A new government could also slow progress in Iraq’s latest licensing round held in late-April.

Other schemes, which could be affected, include the South Integrated Project. The multi-billion dollar development with ExxonMobil and PetroChina will be crucial to meeting Iraq’s production capacity target of 8 million b/d in the coming years.

Iraq also plans to increase its crude oil export capacity by as much as 40% from the south. Southern export options currently include Khor al-Amaya, Basra Oil Terminal and its four single-point moorings. Crude exported from the north to Turkey’s Ceyhan terminal on the Mediterranean is under the control of the Kurdistan Regional Government (KRG), and Baghdad will not agree to use that route until it has assurances all oil is transferred to its own marketing organization, SOMO.

Bottlenecks at refineries are a further constraint, with the 330,000 b/d Baiji facility still offline after being taken over in 2014 by Islamic State militants, leaving Iraq with only two large operating refineries, in Baghdad and Basra. The oil ministry has offered nearly 1 million b/d of new refinery construction projects to investors. Only one has been formally awarded — a 70,000 b/d refinery in Kirkuk.
PARTIES AND POLICIES

The most likely blocs that will be given the right to name energy ministers:

* Victory Coalition, led by prime minister Haider al-Abadi, who has been in power since 2014. Abadi hopes to capitalize on his successes driving out Islamic State militants, and reclaiming territory, including major oil fields from the KRG. Oil minister Jabar al-Luaibi has effectively been in full campaign mode for the past year, signing initial contracts and launching new downstream investment schemes. Abadi appears popular in Basra but also faces criticism over economic development in the province.

* State of Law Coalition under Nouri al-Maliki who was prime minister from 2006 to 2014. He remains popular with a significant segment of the Shia political elite, but his reputation is tarnished by allegations of corruption. Islamic State took over a third of the country under his watch.

* Fatah Alliance, led by Hadi al-Amiri, Badr Organization. This is predominantly made up of groups affiliated with the increasingly powerful Hashid al-Shabi paramilitary groups.
NEW OIL MINISTER?

Potential oil ministers who could replace the incumbent Luaibi:

* Karim Hattab, the current deputy minister for upstream. He is semi-aligned with Abadi but could switch sides.

* Ibrahim Bahrul al-Uloom, who served as oil minister from May to December 2005, is now an MP running for the Fatah Alliance and could well be another choice. He is a proponent of private sector investment and re-starting the national oil company.

* Ali Maarij, a former director general of state-owned Missan Oil Co., now an MP and chair of the parliamentary oil and energy committee. He was elected in 2014 as part of the State of Law coalition.
KURDISTAN REGION

The semi-autonomous Kurdistan Region is unlikely to play a decisive role in selecting the federal prime minister. Iraq’s Kurds are now more fragmented since last year’s failed independence referendum. Baghdad could also emerge with more leverage in its long-standing dispute over oil exports and revenues.

Iraq signed an initial agreement earlier this week with BP to study long-neglected fields in and around Kirkuk. The key Avana Dome and Bai Hassan fields were under Kurdish control from June 2014 to October 2017, when federal forces retook them. Producing a combined 280,000 b/d previously, the fields are currently offline due to the political disputes between Baghdad and Kurdistan.

These fields could be brought online relatively quickly if the new government reaches a revenue sharing deal with the Kurds including use of the export pipeline to Turkey. All three of the main candidates for prime minister could push for a deal with the KRG, but this would depend on a complex combination of the strength of their votes, the need for partners in a coalition and the terms offered by the Kurds.
OPEC’S CUT DEAL

Whoever wins, Iraq is unlikely to single-handedly scuttle OPEC’s production quota agreement. Oil revenues are crucial to the country and the current deal serves its interests. With Iran possibly losing market share under new US sanctions, Iraq and other members of OPEC may see an opportunity to increase production while maintaining OPEC-wide targets.
Source: Platts

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