Iraq's Capacity Plans Collide With Constraints

A surge in Basrah crude exports in April raised hopes that Opec’s second-largest producer could help ease global supply tightness and cool red-hot prices. But Iraq has reached its limit in southern export capacity, and a bitter row between Baghdad and Erbil is preventing cooperation on boosting exports from northern Iraq. Indeed, it is hard to see Iraqi production rising much above April’s two-year high of 4.4 million barrels per day any time soon. Longer term, few doubt the country has the resources to achieve the 8 million b/d target that the oil ministry is eyeing by 2028, particularly with high prices sparking renewed investor interest. But political risk factors, bottlenecks and shifting company priorities are formidable obstacles to realizing the projects needed to get there. Iraq has succeeded in restoring much of the nearly 1 million b/d of production cuts it made two years ago, putting it ahead of many fellow Opec-plus members who are struggling to hit rising output targets. But Iraq's ability to fix its severe oil production constraints is under renewed scrutiny. State oil marketer Somo hit its southern export ceiling of 3.28 million b/d in November. Plans are afoot that should partially alleviate its export constraints at Basrah this year, and field development activity is picking up. Record oil revenues also should help. But the deadlocked government formation process is hampering critical projects that would allow Iraq to pump more than 5 million b/d. Even the oil ministry does not see that happening before 2025.