Lower oil prices, war pushes Iraq’s budget deficit higher despite massive crude reserves

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Photo courtesy - EIA

A sharp drop in crude oil prices and with the war against the Islamic State of Iraq and the Levant (ISIL) has caused Iraq’s budget deficit to grow substantially in 2015 despite it being OPEC’s second-largest crude oil producer after Saudi Arabia, the U.S. Energy Information Administration (EIA) said.

Despite the near-record level production growth in 2015, the Iraqi government lowered its future oil production targets and slashed investment plans, and the government has been struggling to keep up its share of payments to the international oil companies (IOCs) operating its oil fields, the report said.

Iraq’s economy is heavily dependent on oil revenues. In 2014, crude oil export revenue accounted for 93 percent of Iraq’s total government revenues, according to the International Monetary Fund. In 2015, Iraq (excluding KRG) earned slightly more than $49 billion dollars in crude oil export revenue, $35 billion less than in 2014, despite a substantial increase in export volumes, according to the report.

crude_oil_exports_destinationIraq also holds the world’s fifth-largest proved crude oil reserves after Venezuela, Saudi Arabia, Canada, and Iran.

Most of Iraq’s major known fields – all onshore — are producing or in development, although much of its known hydrocarbon resources have not been fully exploited, the report said, adding that the largest fields in the south have relatively low extraction costs owing to uncomplicated geology, multiple supergiant fields, fields located in relatively unpopulated areas with flat terrain, and the close proximity of fields to coastal ports.

The report said that Iraq, which was re-developing its oil and natural gas reserves after years of sanctions and wars, had seen its crude oil production grow by almost 1.5 million barrels per day (b/d) over the past five years, increasing from 2.6 million b/d in 2011 to almost 4.1 million b/d in 2015.

These production estimates include oil produced in the Iraqi Kurdistan Region, the semiautonomous northeast region in Iraq governed by the Kurdistan Regional Government (KRG).

“The country’s production grew at a slower rate than the Iraqi government had expected over the past decade because of infrastructure bottlenecks in the south, supply disruptions in the north, and delays in awarding contracts. However, Iraq’s production boomed in 2015, increasing by almost 700,000 b/d compared with the level in 2014 and representing the largest year-over-year increase since Iraq’s production recovery in 2004, following the start of the Iraq war,” the report said.

Read the full report here

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