Skip to main content
Complete Olympic Games coverage at your fingertips
Your inside track on the Olympic Games
Enjoy unlimited digital access
$1.99
per week for 24 weeks
Complete Olympic Games coverage at your fingertips
Your inside track onthe Olympics Games
$1.99
per week
for 24 weeks
// //

Flames burn at a station in al-Zubair oil field near Basra, Iraq, on April 21, 2020.

Essam Al Sudani/Reuters

A debate within Iraq over whether it should ask to be exempt from OPEC+ oil supply cuts has resurfaced as low prices squeeze its finances, challenging a government struggling to tackle the destruction of years of war and rampant corruption.

OPEC’s second-biggest producer, Iraq has failed in the past to fully comply with OPEC+ oil output reductions, pumping above its production targets since the pact was first signed in 2016 between OPEC and its allies led by Russia.

“Iraq always believed they were not properly treated in December 2016 when they were not exempted. As the economy continues to reel from low prices, this issue keeps resurfacing,” said an OPEC source.

Story continues below advertisement

Iraq’s economy and oil sector were battered by years of wars, sanctions and a stubborn Islamist insurgency triggered by the U.S. invasion. Baghdad complained it had struggled to revive its stagnating oil industry, at a time where other OPEC members benefited and boosted their market share.

Iraq relies on oil to fund 97 per cent of its state budget. Iraqi Finance Minister Ali Allawi told parliament on Wednesday that reforming Iraq’s economy would take five years of work and that state debt amounted to 80-90 per cent of national product, while foreign debt was at $133 billion.

From May 1, the Organization of the Petroleum Exporting Countries and allies, a grouping known as OPEC+, made a record cut of 9.7 million bpd, or 10 per cent of global output, after the coronaries destroyed a third of world demand. From Aug. 1, the cut tapered to 7.7 million bpd until December.

Iraqi politicians have criticised the pact which was signed by the previous caretaker government under which Baghdad had committed to a big cut in its output.

With oil prices currently trading at around $40 a barrel, opposition to the oil cuts is rising behind closed doors and talks of reviving old calls to review the size of the reductions have resurfaced, Iraq and OPEC sources told Reuters.

A senior Iraqi official with knowledge of the talks said there were differing views between the oil ministry and the prime minister’s office over whether to fully comply with the cuts or ask for an exemption for next year.

The oil ministry wants to ask for an exemption, the official, who declined to be identified, said, while officials in the prime minister’s office insist on compliance.

Story continues below advertisement

The disagreement revolves around Iraq’s current financial issues, the official added.

In May and June, Iraq had agreed to reduce its crude output by just over 1 million barrel per day, which would then ease to 849,000 bpd from July until end of the year.

Iraq has continued as a member of the deal but has overproduced above its quota.

But now Iraq needs to fully comply with the agreed output targets and even compensate for its previous overproduction in May-July by cutting deeper for the following months.

“There is strong opposition ... for their (Iraq’s) continued participation in the supply cuts,” the OPEC source said, adding that there has been unofficial talk about Baghdad’s need to seek an exemption from the oil cuts in 2021 but it was not clear whether Iraq would actually take that step or not.

In August, Iraq has reached its highest compliance in recent years but it has said it may need to extend the compensation period by two months.

Story continues below advertisement

Current Prime Minister Mustafa al-Kadhimi took office in May, becoming the third Iraqi head of government in a chaotic 10-week period that followed months of deadly protests in the country, which has been exhausted by decades of sanctions, war, corruption and economic challenges.

Iraq’s oil ministry spokesman said last week that Baghdad remained fully committed to the OPEC+ oil supply cut agreement, denying a media report that it was seeking an exemption from the reduction pact during the first quarter of 2021.

In June, Iraq has said it asked OPEC to take into consideration the members' economic situation in sharing the burden of future oil cuts.

The World Bank estimates Iraq’s economy will shrink 9.7 per cent in 2020 on back of lower oil prices and coronavirus, compared to 4.4 per cent growth in 2019.

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow topics related to this article:

View more suggestions in Following Read more about following topics and authors
Report an error
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies