Iraq committed to slash oil production to stabilize economy: Oil minister

ERBIL, Kurdistan Region - Iraq will remain committed to a cut in oil production by more than 200,000 barrels per day to combat dropping prices that impact its economy, the oil minister said in an exclusive interview on Thursday ahead of an OPEC meeting. 

"The latest decision to cut production was more of a voluntary move, rather than an obligation. Phone calls were made with brothers including oil and energy ministers from OPEC and OPEC+. An agreement was struck because there was a decline in oil prices," Iraqi Oil Minister Hayyan Abdul Ghani told Rudaw's Nwenar Fatih in Baghdad. 

In compliance with the OPEC+ production cuts, Iraq announced in April that it was cutting oil production by 211,000 barrels per day starting from May and effective until the end of 2023.

"The reason behind this decision was the falling prices of oil, and to send guarantees for sustainable oil exports to the international market so a similar energy crisis would never happen again," Ghani said, noting that low oil prices have "significant impacts" on the economy of Iraq and other oil exporting countries. 

"We want to remain committed to the production cut," he said. 

Iraq's three-year federal budget, which is awaiting parliamentary approval, set oil prices at $70 per barrel and anything below that would plunge the country into economic instability.

"The preferred prices are $70 and beyond, roughly from $73 to $74, and it happened that sometimes the prices went much further up. We are committed to the prices, and maybe the key objective is that we want the prices to fix and stabilize around $80," Ghani said. 

Ministers from the 13-nation OPEC cartel will meet on Sunday to discuss oil production cuts, possibly by as much as 1 million barrels per day, according to Reuters. The group controls around 40% of the world's crude. 

Western nations, especially the United States, have repeatedly accused OPEC of manipulating and driving up oil prices. Washington has called on member states such as Saudi Arabia to reconsider decisions to cut production. 

"The indicators are that the prices will stabilize, and maybe in the next few months, the prices will go up further," said Ghani.

Regarding the suspension of Kurdistan Region's oil exports through the Iraq-Turkey pipeline amid an ongoing arbitration row between Baghdad and Ankara, Ghani said that Iraq took advantage of the suspension of exports to meet its reduction quota in OPEC as it had previously failed to make required cuts. 

Oil firms operating in the Kurdistan Region have stopped production or reduced output after a Paris arbitration court in late March ruled that Turkey had violated an agreement with Iraq by allowing the Kurdistan Region to begin independent oil exports in 2014. 

"With regard to Iraq, there were basically demands on Iraq's share because Iraq had violated its allocated share in the past, so we took advantage of this reduction," the minister stated. 

The Kurdistan Regional Government (KRG) exported some 400,000 barrels of crude per day to global markets through Turkey. The Iraqi government also exported about 75,000 barrels of Kirkuk oil per day through the same pipeline.

The oil minister expressed optimism about the resumption of the Region's oil exports, saying that the stoppage "will not continue" amid ongoing negotiations with Turkey. "We hope to receive a delegation from the Turkish side soon to resolve this issue," he said.

As the federal government asserts some control over the Kurdistan Region's oil sales in the wake of the court ruling, Baghdad is reviewing existing contracts.

"We met with the companies and we agreed to establish a committee from both sides to review the contracts. Until now, the review process is not done, however what was signed was that SOMO will rely on the price that it relies on for all of Iraq's oil to export that oil," the minister said. 

Ghani late last month told Rudaw that his ministry has signed contracts with four companies to buy about half a million barrels of oil from the Kurdistan Region per day, and that they have informed the Turkish side that Iraq is ready to export this amount of oil – between 400,000 and 500,000 barrels per day.

"We do not know what these contracts consist of and they are being reviewed now. If there are clauses or questions in the contracts that need to be amended, they will be amended, hopefully," he said. 

 

TotalEnergies deal 

A deal signed between the Iraqi government and France's TotalEnergies will see the energy giant build four projects for oil, gas, and renewables in southern Iraq over 25 years. 

"The Total contract is special because it is a connected contract. It is called the southern Iraq integrated contract. This contract encompasses the development of gas, production of crude oil, and the usage of seawater for the equipment of the fields for oil purposes," Ghani said, adding that developing renewable energy sources such as solar is also part of the deal. 

According to the minister, the contract consists of a facility processing 600 million cubic feet of gas per day, which is expected to be completed in two stages over five years. 

The agreement was reached after five rounds of talks between TotalEnergies CEO Patrick Pouyanne and Iraqi Prime Minister Mohammed Shia' al-Sudani. 

The contract was initially signed in 2021 but faced a delay due to disagreements over Iraq's stake in the deal as Baghdad demanded a 40 percent share. 

A final agreement was reached in early April and TotalEnergies will have the lion's share with a 40 percent stake in the Gas Growth Integrated Project (GGIP), followed by Iraqi state-owned Basra Oil Company with 30 percent, and QatarEnergy with 25 percent.

"Gas will be invested from five primary oil fields – the Majnoon field, the West Qurna 2 field, the Luhais field, the Artawi field, and the Tuba field," Ghani said. An increase in crude oil production "within the range of 150,000 to 160,000 barrels per day from the Artawi field" is also part of the deal as well as sulfur extraction from the oil and a seawater station capable of supplying 5 million barrels of water every two days. 

  

"With the implementation of this contract, the gas flaring in these fields will completely stop," said Ghani.

Gas flaring

Gas flaring is the process of burning excess gas produced by oil wells that is not captured or used and is considered a convenient way to deal with the waste product known as associated petroleum gas. It is, however, extremely damaging to the environment and public health and contributes to climate change.  

Iraq is notorious for the deadly and toxic practice of gas flaring. It is second only to Russia in terms of the amount of gas burned off, though the Iraqi population lives on average much closer to the flaring sites than Russians do. 

"Iraq is compliant with the Paris Agreement and the development of its gas in its entirety to stop the flaring of gas by 2030," Ghani said, adding that he regrets such large quantities of gas are flared while Baghdad continues to import gas from Tehran for its electricity needs. 

"Today we import large quantities of gas from our neighbor Iran, and we cannot continue like this, to import gas while the gas in our fields is flared. The majority of gas that is available to us is associated gas, which comes from the production of crude oil," the minister said. 

"Within five years of activating the Total contract, there will be a stoppage of gas flaring from five oil fields," he said.

The World Bank estimates that Iraq flares around 17 billion cubic meters of gas every year, worth around $8 billion annually. The practice causes severe environmental damage and remains a serious risk to the wellbeing of people living close to flaring sites, from Basra to the Kurdistan Region, where refugee camps are particularly vulnerable.

Last month, Prime Minister Sudani called the practice of flaring gas "burning money on a daily basis" and reaffirmed his commitment to preserving Iraq's environment and reducing flaring.

When asked whether Western companies still look favorably on Iraq for investment, Ghani denied there is a problem and referred to British Petroleum (BP), the operator of Iraq's super-giant Rumaila oil field, as an example. 

"If we discuss BP - British Petroleum - it operates the largest oil field in Iraq which is the Rumaila oil field, in its entirety from south to north. Thankfully, the situation is fine and the work is conducted in a proper way," he said, despite the oil field being called "the cemetery" by locals due to large amounts of gas flaring that have caused cancer rates to increase in the area. 

Ali Hussein Jaloud, a 21-year-old Iraqi who lived next to BP's Rumaila oil field, died on April 21 of leukemia, a disease that was largely attributed by him and his family to the pollution from the flared gas that surrounds their community. 

Following his death, the US-based Human Rights Watch called on the Iraqi government to "start by moving beyond simply acknowledging the problem to enacting and enforcing tight restrictions to restrict flaring" and make polluters compensate communities affected by the deadly practice.