Opec head visits Baghdad as Iraq pleads special case to avoid output curbs

The Opec chief has flown to Baghdad for talks on the Algiers accord.

The Opec secretary general Mohammed Barkindo is brokering talks over a production output cut. Leonhard Foeger / Reuters

The Opec secretary general Mohammad Barkindo flew to Baghdad yesterday for high-level talks with Jabbar Al Luiebi, Iraq’s oil minister, after the Iraqis made it clear they expect to join the list of special case countries who will not be asked to contribute to any output limits that may be agreed at next month’s ministerial meeting in Vienna.

It is the latest in a round of talks triggered by an agreement last month in Algiers by Opec members – particularly de facto leader Saudi Arabia – to push for a deal to curb output to speed up the rebalancing of the world oil market.

Iraq and Iran have been the largest contributors to growth in world oil production this year, with their increases of about half a million barrels per day (bpd) each more than cancelling out the decline in production by higher-cost producers in the US and elsewhere.

In a statement released to the press, Mr Al Luiebi said to Mr Barkindo: “Your visit comes at a time when Iraq is working hard to develop its oil industry, while at the same time fighting terrorism and achieving victories against ISIS in Mosul and other places in Iraq.”

The emphasis on Iraq’s internal conflict underlined the government’s position that the country should not be asked to contribute to the group’s efforts at a time when it is under exceptional financial strain.

Indeed, Iraq and its international oil company partners have struggled this year to meet capital spending budgets that would help it meet production goals. Despite the higher output this year, it has reached a plateau as investment has stalled.

Mr Barkindo stressed that the oil price collapse has been the worst the market has suffered in more than three decades, with the result that industry investment has collapsed by about US$300 billion this year.

The Iraq case underlines the bartering that is going on ahead of any deal, with the special circumstances of Nigeria and Libya and their own internal strife hitting production levels this year; as well as Iran, which is trying to get production back to the level before nuclear-related sanctions in 2012 knocked it down by 1 million bpd.

Iran’s production has, in fact hit a plateau at about 3.6 million bpd during the summer and it has yet to agree with international oil companies, whose technology it needs to rehabilitate its industry, the terms of new development contracts.

In Iraq’s case, the country is “aiming to expand its oil sector through smaller field developments to lower reliance on the major oilfields and their operators for growth”, according to BMI Research analysts.

The government has offered the first new licences since 2012 and is negotiating the contracts directly with potential new investors, including Mubadala Petroleum of Abu Dhabi and Sharjah-based Crescent Petroleum, with different terms than existing contracts.

Next week, Opec’s technical groups are due to meet to hammer out details such as how they will monitor any deal that is agreed, how barrels will be counted and so forth. But the latest round shows that the big questions are still far from settled.

Mr Barkindo was also due to meet the Iraqi prime minister Haider Al Abadi yesterday.

Opec said secretary general Barkindo is expected to visit Kuwait and the United Arab Emirates in early November and attend the Abu Dhabi International Petroleum Exhibition and Conference, “in continuation of the extensive consultations post Algiers accord”.

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