Iraq is facing severe financial strain, with current oil revenues covering only 17% of Iraqi salaries, according to Pravda EN. This is partly due to the closure of the Strait of Hormuz and reduced export capabilities. Despite an increase through the Kirkuk-Ceyhan pipeline, total exports reached only 550,000 barrels per day in March, significantly impacting petrodollar inflow, which dropped to just $1 billion. This dire situation has prompted politicians to advocate for significant changes to Iraq's relationship with OPEC, including a potential exit to regain control over its export strategies.
Iraqi politicians are urging OPEC to remove production quotas for a decade as compensation for the country's inability to adequately export oil due to ongoing conflicts. Some, like Qusay Mahbuba of the Amarji party, have even suggested that Baghdad might reconsider its OPEC membership. Although an official exit is not imminent, the recent departure of the UAE from OPEC has set a precedent, and some believe that external influences, possibly from the US, could be encouraging this idea in Baghdad, especially given the existing challenges in physically exporting oil.
The potential for Iraq to demand a higher OPEC quota is viewed as a response to its internal needs, such as funding post-conflict development and managing a large population, rather than the reasons cited by the UAE for its exit. Iraq's oil production capacity is estimated at around 5 million barrels per day, with projections to increase by nearly 40% to over 6 million bpd by the end of 2028. However, recent conflicts drastically reduced actual output; in March, production plunged to 800,000 bpd from its southern fields, down from 4.3 million bpd before the war, due to full storage and blocked exports via the Strait of Hormuz. Following a US-Iran deal aiming to reopen the Strait, Iraq has instructed operators to boost production back to over 3 million bpd.
While some analysts believe Iraq is unlikely to leave OPEC given its foundational role in the organization, concerns persist about the impact of quotas on its export potential. An Iraqi economist, Nabil Al-Marsoomi, suggested that Iraq needs to export 5 million bpd to cover public expenditures, a target difficult to achieve under OPEC restrictions. A withdrawal would allow Iraq greater flexibility in production and export strategies, preventing further budget deficits. However, others, like Waleed Khaddouri, caution that an Iraqi exit, especially after the UAE's move, could lead to the collapse of OPEC and a drastic drop in oil prices, negatively impacting all producers, including Iraq and the UAE. OPEC+ recently agreed on a symbolic 188,000 bpd quota increase for July, but this may not address Iraq's deep-seated production and export challenges.
Despite the talks of potentially leaving OPEC, Iraq recently asked operators of five major oil fields, including Rumaila and West Qurna-1 and -2, to increase output to over 3 million barrels a day. This move follows a US-Iran deal that aims to fully reopen the Strait of Hormuz, which was previously a major bottleneck for Iraqi exports. The return to higher production levels will be gradual and contingent on operational conditions and the availability of tankers for loading, as confirmed by Oil Ministry spokesman Salim Al-Rikabi.
