Revival Of The Iraqi Economy Is Possible

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Summary

The results of the OPEC conference in Vienna are positive for Iraq.

The revival of oil prices will help in the battle against the Islamic State.

There has been growth in oil exports to Asian countries and to the U.S.

Iraq is an oil producer that makes 4.32mbbl/d of oil, and is the second-biggest state in OPEC after Saudi Arabia. This fact allows it to produce up to 13% of the cartel's output. It's worth mentioning here that Iraq is a country whose role in the organization is very important. Despite a large number of countries producing oil and being satisfied with the state of this segment of the market and with the price of oil, they have to reckon with all the members of OPEC. Even Iraq, which could not agree with these conditions, will be forced to reduce its usual pace of work for six months from Jan. 1 of next year.

The agreement to cut production with one of the world's largest oil makers can mean we'll see a turnaround in the ailing Iraqi economy. An historic decision of OPEC was announced on Wednesday. It will revive oil prices and eventually generate enough revenue for the government and its struggle with ISIS.

To date, the financial crisis in Iraq was felt so strongly that the government introduced austerity measures. All of this is manifested in the merger of some ministries, the termination of construction projects, and the introduction of new taxes. There were also some efforts to obtain loans from local and foreign creditors.

That's why higher oil prices are so clearly reflected in the behavior and statements of the heads of state. Prime Minister Haider al-Abadi, in an interview on Monday with the Associated Press, described the previous level of oil prices as "inadequate." Having carried out the necessary calculations, he concluded that the price of a barrel of oil increased by $1 will add $1 billion to the state budget. Thus, it is fair to say that Iraq will have more benefits by reducing production and raising prices. As an example, it will surely help continue the battle against the Islamic State.

All of the previous facts cannot indicate the exact position of Iraq and its attitude toward the latest events and to the agreement between the members of OPEC. To look at the real situation of oil producing rates, we must turn to the next scheme.

Iraq oil exports cumulative chart

Source: Tanker tracking data, author's calculations.

These data show that at the end of October, there were sufficiently large volumes in oil exports. That is shown on the graph on Oct. 29, where the yellow line rises sharply upward. This situation continued for several days, but changed a little on Nov. 3 when the volume of exported oil was reduced. Additional changes occurred in a positive direction. We see that from Nov. 4-11, the volume of oil exported from Iraq did not fall significantly. A slight decrease occurred on Nov. 12, after which all the data returned to normal until Nov. 16 when no tankers were sent from Iraq. Subsequently, as the graph shows, the exported amount of oil remained at the middle level.

To explain the situation of exports further, it is necessary to examine the data on export destinations. They are presented in the following chart:

Iraq export pie chart

Source: Tanker tracking data, author's calculations.

Speaking of oil exports, the largest share was sent to three Asian states -- China, Korea and India. In addition, India has the leading position among importers of Iraqi oil. This process and its volumes are shown in the next graph.

Iraq-India oil flow

Source: Tanker tracking data, author's calculations.

The scheme here clearly reflects almost the same facts as in the previous chart. Oil was sent to India in large quantities at the end of October and after Nov. 8.

Some of the oil has been sent to the Suez Canal. Regarding the following export, it is difficult to detect the exact destination; the range is quite wide, from Turkmenistan to the Netherlands and Portugal. It can be said that the U.S. is also a leader among the importers.

Iraq-USA oil flow

Source: Tanker tracking data, author's calculations.

Despite the fact that there were only four departures to the U.S., their total volume is rather essential and the share is larger than what it was during the previous months. Bad weather conditions have led to a situation where the tanker data from the Persian Gulf were incomplete.

To top it all off, we will offer two points of view on this question, as it's difficult to predict the behavior of Iraq. On the one hand, despite oil exports decline during the period of October-November, we could say that the oil exports from Iraq during December will be higher than those of the previous months. The ambivalence about Iraq's OPEC agreement to cut or to freeze the level of oil production in January of next year might support that. Thus, it's possible that, in not wanting to give up the extra profits, Iraq will try to give everything on full power during the last month before the realization of the agreement. As a result, it might significantly increase the level of oil exports.

On the other hand, relying on the words of the Prime Minister of Iraq, we can expect that the deterrence of oil production will be held in Iraq, since in the future the same amount of oil can be sold at a higher price. Meanwhile, it's still too early to talk about the full support of the proposed care plan by all of its members.

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Additional disclosure: The material presented in this article is provided for informational purposes only and is based upon information that is considered to be reliable.