ECONOMY
Adil Abdul-Mahdi, who formally resigned as Iraq’s prime minister on Sunday, speaks in Baghdad, October 23, 2019. File photo: Ahmad al-Rubaye / AFP
BAGHDAD, Iraq – Iraq has been rocked by two months of anti-government protests that brought down premier Adil Abdul-Mahdi on Sunday, but its lucrative oil industry has been curiously insulated from the turmoil.
AFP looks at how the energy industry of OPEC’s second-largest producer has weathered the latest unrest and what could affect global markets in the months to come.
Have protests hurt Iraq’s oil?
In a word, barely.
“All our stations, branches, reserves and transport lines, they’re all working,” oil minister Thamer al-Ghadban told reporters on Sunday, hours before parliament agreed on the cabinet’s full resignation.
Since October, sit-ins demanding regime change have intermittently blocked roads in southern Iraq, including near the oil fields of Nasiriyah, Garraf and Subba.
They have also shut access to the Khor al-Zubair port, keeping employees from getting to work in the mornings.
But both the fields and ports had overnight workers who extended their shifts so there was little effect on processing, employees and port officials told AFP.
The closures did halt the 30,000 barrels per day of heavy crude trucked in from the northern Qayyarah field and exported from Khor al-Zubair, field and port workers said.
But the rare barrels transported by road make up a negligible share of the roughly 3.6 million barrels that Iraq ships out daily.
There was little change to those exports, according to oil ministry figures, which logged 3.4 million bpd exported in October and 3.5 million in November.
“It’s dicey but it's still pretty much under control,” says Ruba Husari of the Iraq Oil Forum.
Why hasn’t there been a greater hit?
The three main components of Iraq’s oil industry are huge producing fields, major refineries and the offshore export hubs in Iraqi waters.
“The degree of vulnerability of those (components) to outside interruption is low,” Husari tells AFP.
It’s partly by design: the oil fields are self-sustaining islands of production and the vast majority of crude is then transported to export hubs by pipeline, not truck.
“So it cannot be impacted directly by protests taking place on land,” says Noam Raydan, an analyst at ClipperData, which monitors oil tankers.
Refineries, too, are mostly in northern and western areas unaffected by protests.
It’s also due to the response by the oil ministry, which prepared reserves of fuel products for domestic consumption, and security forces which regularly broke up sit-ins outside fields and ports.
And while teachers, doctors and engineers employed by the state went on strike at various points over the past two months, oil workers did not join in.
“The staff in the oil sector are the best paid among all ministries in Iraq,” says Husari.
They have little incentive to put their jobs on the line, particularly as competition for those positions or others at state-owned oil companies is fierce.
What are the risks now?
The closures outside Khor al-Zubair have only lasted two or three days at a time, but they could become “problematic” if extended, says Husari.
Iraq has few storage facilities and a build-up of unexported heavy crude or excess fuel oil that cannot reach the port would force a halt in processing.
Since Khor al-Zubair is also used to import gasoline, a refined product Iraq does not produce, long-term disruptions there could lead to shortages at petrol stations or price changes.
Another escalation would be a sit-in inside a key oil field such as Rumaila or West Qurna, or prolonged street closures outside of them.
“If they do that at one major field to the point of forcing a shut-down, then it would hurt tremendously. But that’s a long shot,” says Husari, adding that there had been no precedent in Iraq’s recent history of protesters targeting major oil infrastructure.
What happens next?
Iraq relies on its oil exports to fund more than 90 percent of its state budget, so a halt would cut off the government’s financial resources.
It would also likely trigger a major downturn in the national economy, which has remained relatively stable.
A serious disruption to exports would also affect the global oil market, to which Iraq is a major contributor.
“A big drop – if sustained – would have a significant impact on prices,” says Raydan.
Iraq had already pledged to drop its crude output to fall in line with an OPEC-wide trim of 1.2 million bpd designed to revive prices.
OPEC is set to meet on December 5-6 in Vienna to consider a possible further cut, Ghadban told reporters.
“The prevailing wisdom today is on continuing the 1.2 million bpd cut for the coming year – a decision to which Iraq is committed – with an additional cut, perhaps 400,000 bpd,” he said.
By Maya Gebeily
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