LONDON(Commodity online): Iraq is poised to be a major source of supply growth in the oil markets over the next decade. Great expectations have been placed on the country as a result of its vast reserves, and also because it represents one of the few conventional oil supply centres with significant growth potential.
Iraqi oil exports were higher y/y by 12% in a year where positives across the global supply system (ex-North America) were rare to find. In terms of actual oil production, achieving an average of 3.2 mb/d, the country also overtook Iran through the second half of the year, becoming the second biggest contributor among OPEC members.
Beyond these headline average growth numbers lies another crux, in that, in line with Barclays expectations there was a high degree of variability in Iraqi exports throughout the year. Therefore, as much as Iraq being the second-largest contributor in the OPEC stream sets the watermark for its potential, through its domestic political challenges, it represents one of the largest risks from a fragile yet sizeable oil supply source.
The political and security situation remains challenging and if it were to deteriorate markedly it could tamper investor enthusiasm and put at risk the government?s ambitious plans to ramp up production.
Sectarian tensions are running high in Iraq following the December 20 arrest of Finance Minister Rafa-al-Issawi?s bodyguards. Large anti-government demonstrations have broken out in the predominantly Sunni Anbar, Ninewa, and Salahaddin provinces.
The protests come against a backdrop of continuing violence in Iraq. Multiple bombings on January 2 claimed the lives of 32 Shiite pilgrims. Three dozen people were killed in a series of explosions across the country on New Year?s Eve.
At the same time, Prime Minister Maliki?s relations with Kurdish officials remain fraught. Last month, senior Maliki advisors warned of serious unrest if the international oil companies that signed agreements with the Kurdistan Regional Government commence drilling in territories claimed jointly by Baghdad and Erbil. Kurdish oil exports have been curtailed since December because of a
dispute with Baghdad over payments.
Overall, along with the geopolitical risks, the realignment of several operators? focus on upstream developments within the country, as well as uncertainty with regard to rights for these key projects, is another limiting factor in realising Iraq's growth potential, in the view of Barclays.
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