Iraq is threat to Iran’s crude oil export market

Oil&Gas Materials 26 January 2011 17:22 (UTC +04:00)
Oil production growth in Iraq and its agreements with foreign oil companies, along with international economic sanctions applied against Iran, can turn Baghdad into a serious threat to Tehran's oil products export market, Trend Expert Council’s member Reza Taghizadeh believes.

Azerbaijan, Baku, Jan.26 / Trend T. Konyayeva /

Oil production growth in Iraq and its agreements with foreign oil companies, along with international economic sanctions applied against Iran, can turn Baghdad into a serious threat to Tehran's oil products export market, Trend Expert Council's member Reza Taghizadeh believes.

"Iraq is a threat to Iran's crude oil export market, more serious than Saudi Arabia with its 2.5 million barrel a day spare production capacity," Taghizadeh wrote Trend in an e-mail.

A growth in oil production in Iraq will not become a threat to Iran in the presence of investments in the development of the Iranian oil fields, the ISNA news agency quoted head of National Iranian Oil Company (NIOC) Ahmed Galebani as saying.

Galebani added that Iran needs to annually invest $30 billion in the oil sector to implement a program for a 20-year period to increase oil production, including through exploration of new oil fields.

With the program developed and put into force in 2006, within the next 15 years, Iran needs to invest $500 billion in projects to increase oil production to 7 million barrels per day.

In December, Iraq, which has one of the world's largest oil reserves, managed to bring oil production to the level of 2.7 million barrels per day, which is the highest figure over the past two decades. A growth in production is mainly observed in the fields of Al-Rumaila in the southeast and the al-Zubayr, developed by BP and the Italian company ENI.

According to Taghizadeh, at the moment, Iraq's oil export capacity is close to Iran's capabilities.

In addition, he said that Iraq offers foreign oil companies production-sharing agreements, whereas Iran, even regardless of economic sanctions, offers buyback agreements.

Taghizadeh believes that the oil companies would like to invest more and get more profits than only acting as oil contractors.

"Therefore, Iraq could offer them a lot more than Iran. If oil prices in the market go down, the seriousness of Iraqi oil to Iran market would be even more visible," he said.

According to him, given the fact that the cost of oil production in Iraq is slightly less than that of Iran, this threat is becoming even more serious with the Kurdistan oil contracts coming to the market.

All agreements that Kurdistan's Oil Ministry signed with foreign companies on production-sharing in the autonomous region of Iraqi Kurdistan, will be recognized by the Iraqi government, Iraq's new Oil Minister Abdul-Karim al-Lu'aibi said on Monday.

At present, authorities of the autonomous region have already signed over 20 deals on energy supplies, which were recognized by the country's government as illegal until yesterday, as they all were signed with the local leadership but not with Baghdad.

Taghizadeh believes that Tehran's complex foreign relations with international community, as well as failure of Istanbul's Jan. 21-22 nuclear talks, can lead to imposing of new sanctions, including restrictions on Iran's oil export.

Last Saturday, Istanbul ended a two-day talk of representatives of the six international mediators (Russia, China, United States, France, Britain and Germany) with Tehran to resolve the Iranian nuclear issue. EU High Representative for Foreign Policy Catherine Ashton assessed the talks as unsuccessful.

Resolutions adopted by the UN Security Council, as well as additional unilateral sanctions approved by the U.S. Congress and the foreign ministers of all EU countries, were primarily directed against the banking, financial and energy sectors of Iran.

Restrictions imposed by the EU include the ban on the sale of equipment, technologies and services to Iran's energy sector; the same measure refers to the refining industry. New investments in Iran's energy sector have also been also prohibited as a whole. Because of lack of investments due to the sanctions, the production capacity is decreasing, and therefore, Iran cannot effectively increase production.

"Iraq, without any doubt, would be one of the two candidates alongside Saudi Arabia to fill in the gap that Iran's 2 million barrel a day oil export might create," Taghizadeh said.

In October, it became known that Iraq ranks second for its oil reserves in the world, ranking after Saudi Arabia. Experts estimated that reserves of crude in the country increased from approximately 115 billion barrels to 143.1 billion.

Iraq intends to increase production to 8 million barrels per day by 2017, Oil Adviser to Iraqi Prime Minister Thamir Ghadhban said in November 2010.

In addition, Iraq, which is the only member of OPEC not included in the organization's quota system, plans to increase its export quotas. According to a preliminary forecast, revaluation of reserves will considerably strengthen Baghdad's position in OPEC and allow the country to increase the export quota in the future.

Revenues from oil exports account for 95 percent of total revenues of the Iraqi state budget and serve as an important source for the maintenance of national economic development and postwar recovery.

At the same time, oil production in Iran may be reduced due to lack of further investments in new production projects and the dilapidation of the existing oil wells.