Iraq to reduce oil production to compensate for exceeding quota last year

Iraq, which is the second largest producer in OPEC after the Kingdom of Saudi Arabia, plans to reduce oil production in January and February of this year 2021 in order to compensate for its excess of its planned share within OPEC+ group during 2020.

Ali Nizar, Vice President of the Iraqi Oil Marketing Company “SOMO”, says that his country will pump about 3.6 million barrels per day over the two months of January and February 2021. This is the lowest level of production since 2015.

Nizar explained that Iraq’s exports, which include Kurdistan’s oil, will be around 3 million barrels per day during this period, compared to about 3.3 million in December 2020. He added that the implementation of the reduction will depend on the extent of the Kurdistan Regional Government’s commitment to reduce supplies from its fields.

The Organization of the Petroleum Exporting Countries and its partners, led by Russia (OPEC+), agreed in April 2020 to reduce the group’s production to support prices, which have fallen sharply due to the contraction in demand caused by the Corona pandemic.

The agreement stipulates that OPEC+ production will be reduced by 10 million barrels per day, starting from May 1, 2020, for a period of two months, followed by a reduction of 8 million barrels per day for a period of six months, and then a third reduction throughout the year 2021 and the first four months of 2022 by 6 million barrels per day.

Most of the group’s members abided by the agreed upon agreement, but some of the violations that occurred from Iraq have been criticized by the rest of the countries that called on Iraq to make compensatory cuts.

Iraq’s decision to pump less oil comes after a similar step taken by Saudi Arabia. As the Corona virus continued to spread, the Kingdom announced its intention to reduce production in February and March 2020 by one million barrels per day.

It is worth noting that Iraq’s budget and the requirements of the Iraqi economy make it a need to sell larger quantities than agreed within OPEC, or to increase oil prices above their current levels, or perhaps for both. The International Monetary Fund expects that Iraq’s commitment to its OPEC+ production quota will lead to a 12% decline in Iraq’s GDP for 2020, which is the highest rate of decline among OPEC member states.

It is worth noting that most of Iraqi oil exports pass through the Strait of Hormuz, and Iran threatens from time to time to target tankers crossing the Strait of Hormuz, which put restrictions on the flow of oil exports through the strait.

Iraq is studying some alternatives, including building storage facilities or using oil storage facilities in Asia to reduce the risk of its inability to send crude oil to its main customers, which is what Saudi Arabia and the UAE do by storing their crude oil in Japan, South Korea and India