Iraqi officials are preparing to cut the country’s oil output targets from 12m b/d to somewhere between 6.5m and 7m b/d, according to The Times.
The paper reports that ministers in Nouri al-Maliki’s regime argue that such a glut of supply could depress prices, and would outstrip demand. But experts have been warning for a long time that the country could never meet its initial targets anyway.
Back in February, Energy Source reported the warning of Fateh al-Khayat, the former director of planning at the Iraqi oil ministry, who said Iraq lacked the infrastructure to be able to pump such an amount. It doesn’t have the pipeline capacity, the water supply or the transportation infrastructure. He said at the time:
In 2017, if contracts were met, production would be 13.6m b/d from Iraq. That is higher than any other country in the world today. This cannot be achieved. It is a pipe dream and the world of oil should not count on it.
Analysts have made similar comments. BarCap’s Amrita Sen told Energy Source just a few weeks ago the market has accounted for something closer to 6m b/d, and her words have been borne out by the fact that the oil price has fallen, rather than risen, today.
It is worth noting, however, that even on these more realistic targets, Iraq would overtake Iran as the second biggest supplier in Opec.
Companies such as BP and Shell would now have to renegotiate their contracts in Iraq. But they would have seen this coming, and should be well prepared.