Iraqi oil minister Abdul-Karim al-Luaibi was in Vienna for OPEC talks when Iraq’s second city fell to islamist fighters. He acknowledged that Iraq might not now be able to resume crude flows along the Iraq-Turkey pipeline, which has been closed since early March after sabotage, but insisted that the south of the country was “very, very safe” and that Baghdad would continue to export crude from its Gulf terminals.
Governments in oil-consuming countries will undoubtedly be hoping that Luiabi’s faith in Baghdad’s ability to protect its southern oil fields and export infrastructure is not misplaced.
But what if these jhadists, who have been able to take control of a huge swathe of northern Iraq, continue their push toward the south?
Consumer governments may already be crossing their fingers behind their backs as they subtract 9.75 from 12.5 and come up with 2.75 — Saudi Arabia’s spare oil production capacity in million barrels per day and slightly more than the 2.5 million b/d of crude Iraq is currently exporting from the south.
Perish the thought, they may be saying to themselves, but what if Saudi Arabia, for whatever reason, finds itself unable to increase its crude production to 12.5 million b/d?
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Saudi Arabia’s Gulf neighbors Kuwait and the UAE may be able to pump out a few more barrels. The United States could release oil from its Strategic Petroleum Reserve and the International Energy Agency could also order a stock release. But these stocks would eventually need to be built up again.
The only other country remotely capable of putting a significant volume of crude on world markets is Iran, whose oil minister, Bijan Zanganeh, said in Vienna could boost its oil exports by 500,000 b/d immediately if sanctions were lifted and by a further 200,000 b/d within two months of sanctions being lifted.
The International Energy Agency says Iraq will account for some 60% of OPEC’s crude production capacity growth over the next few years. But with that prediction now looking somewhat challenged, it may well turn out to be the case that the world’s best hopes for output growth lie in Iran, which has been unable to develop its vast oil and gas reserves because of the sanctions on upstream investments.
In view of the developments in Iraq, a deal with Iran on the nuclear issue may take on greater urgency.