Iraq is planning to triple crude oil export volumes via pipeline, according to the prime minister’s office. It needs to do that quickly – and do more.
The target set out this week – 770,000 barrels per day – is, after all, only about a fifth of the 3.6 million bpd exported before the near-closure of the Strait of Hormuz.
In April, the outgoing cabinet approved $1.5 billion to construct a long-delayed pipeline from Basra to Haditha, from where it is planned to extend to Turkey, Syria and Jordan. Baghdad has also been negotiating with Saudi Arabia to reopen a pipeline to Yanbu, closed since 1990. But both projects are likely to take years to achieve, if they are realised at all.
Infrastructure aside, the agreement governing the northern pipeline to Ceyhan on the Turkish Mediterranean coast – capacity only 200,000 bpd, but one of the country’s few viable export options – expires at the end of next month.
Last August Ankara, Baghdad and Arbil were able to put aside their differences – and in the case of Turkey a $1.5 billion dollar fine – and agree to reopen the line after a two-year hiatus. This was something of a miracle, but expect hard haggling this time.
Ali Al Zaidi, sworn in as prime minister of Iraq three weeks ago, thus has much to deal with. The banker and scion of a well-connected Shia family has been picked as a compromise candidate between US and Iranian interests and for his business expertise, analysts have said.
The country of 46 million people is now paying the price for lack of investment in hydrocarbon infrastructure over many years. Iraq has little in the way of storage and few export alternatives to the Strait of Hormuz aside from Ceyhan, trucks and another ageing pipeline to Banias in Syria.
The outgoing Sudani administration made considerable progress in attracting international investment last year and looked on course to realise an ambition to hit 6 million bpd in crude production by 2029.
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Although Shell pulled out of the Nebras petrochemical project outside Basra in 2024, BP added to its position in the super-giant Rumaila oilfield in the south by returning to the abundant Kirkuk fields in the north. In addition, SLB of Texas signed up to the Akkas gas field; TotalEnergies of France completed the first phase of the Ratawi field and was working on a giant seawater supply project; Exxon had gone back to Majnoon; Chevron signed up for Nassiriya and was in exclusive talks over West Qurna 2; while Eni was operating Zubair.
Much of that capacity has now been shut-in.
Zaidi’s latest move at the Ministry of Oil has been to order the arrest of a deputy minister for refining affairs, on allegations of corruption. Adnan Al Jumaili, the official in question, seems to have found himself on the wrong side of a power struggle inside the Shia community.
Assuming the parties can now agree on the distribution of portfolios, the next challenge will be to pass a budget, according to analysts. The outgoing government managed to pass a three-year spending plan. But in the absence of a budget, post-war administrations have been limited to providing essential services and paying salaries, the analysts said.
One major outstanding task is the power grid. Iraq has not been able to fix its long-standing generation and distribution problems, in part due to Iranian interference. Baghdad’s dependence on Iran’s gas has provided Tehran and the Revolutionary Guards with a ready source of dollars that they are likely to seek to protect.
In an optimistic scenario, the Zaidi government could mirror the administration of Haider Al Abadi, which ran from 2014 to 2018. Abadi also came from a religious Shia party but, although railroaded by the Isis militant group in the north and west of the country, proved less ideological and technocratic than his background indicated.
A less optimistic scenario points to instability and worse if Iraq cannot earn enough to pay salaries and provide the food basket given to citizens since the days of Saddam Hussain. Baghdad urgently needs to find ways of getting its oil to market.