Feature: Iraq's OPEC oil pledge questioned as government talks take shape

Baghdad (Platts)--5 Jun 2018 652 am EDT/1052 GMT

Iraq's oil policies and OPEC strategy are likely to come under closer scrutiny during the political jostling to form a new federal government in Baghdad.

The second-largest producer in the Middle East after Saudi Arabia depends on crude for 90% of revenues, but output is restricted because of 1.8 million b/d of cuts agreed by OPEC and its allies. Some newly-elected politicians linked to nationalist cleric Moqtada al-Sadr, whose Saeroon Alliance coalition won the most seats, question if the OPEC deal is good for Iraq.

"For sure Iraq's share of exports should be unlimited so it can compensate for the low oil prices which have increased taxes on the people and workers," Qusay al-Yassiri, a Saeroon lawmaker-elect from southern Dhi Qar province, said. Iraq exported 3.49 million b/d in May, according to official figures.

"We should be able to export whatever we can via open share, we have an abundance of oil and we need to benefit from that," al-Yassiri said.

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Al-Yassiri was one of a dozen newly elected members of parliament and politicians allied to al-Sadr's political bloc interviewed by S&P Global Platts. Negotiations to form a new government are gathering pace following elections on May 12.

Oil prices have recovered 75% since last year to trade above $80/b in May due to growing geopolitical risk in the Middle East and concerns over supplies from Venezuela. Oil ministers from the countries participating in the OPEC/non-OPEC pact are scheduled to meet in Vienna on June 22 with an extension to the deal hanging in the balance.

Baghdad's restraint could be crucial to maintaining compliance, which has been high at 152% for April. To date, Iraq's own commitment has been patchy, with its cuts averaging 45% of its quota over the course of the deal, according to the International Energy Agency.

Participating in the cuts led to "oil price stability and prevented the price from collapsing, at which we can develop the national economy, especially since oil prices are now starting to increase," Jamal Fakhir Awid, a newly elected Saeroon lawmaker from southern Missan province, said.

Awid's Saeroon faction supports Oil Minister Jabbar al-Luaibi, who with the backing of Prime Minister Haider al-Abadi aligned Iraq with the Saudi-led OPEC/non-OPEC cuts agreed in December 2016.

Sadr allies have not said whom they would support for the position in a new government.

Al-Luaibi also won a seat in the election representing Basra within Al-Abadi's Nasr coalition. A life-long oil industry veteran who led South Oil Company in the aftermath of the 2003 invasion, he is respected. Abdul Mahdy al-Ameedi, the long-serving director general of the petroleum contracts and licensing directorate, was previously recommended by Sadr's Ahrar party as minister.

Oil Contracts

Meanwhile, Iraq's relationship with international oil companies will come under closer scrutiny. Iraq has long-term ambitions to boost output capacity to 8 million b/d by 2025, according to deputy oil minister Kareem Hattab. However, the target requires billions of dollars of new investment in infrastructure.

"We have intentions to form a special committee to review all the contracts the oil ministry has signed," said Rami al-Sukaini, who was elected on the Saeroon list representing Basra province. "We intend to correct the uncorrected contracts or cancel them, and to only keep what is useful, whether they were license round contracts or those the oil minister has signed recently."

Between federal Iraq and the Kurdistan region, international oil companies have signed more than 60 contracts since 2007. Without a new law governing the post-2003 hydrocarbons sector, those deals were agreed under the authority of the 2005 constitution and pre-existing laws governing the energy sector.

In March, parliament approved a law reconstituting the national oil company, with a cabinet-level company president. It is unclear if the position will be filled during, or after government formation, but lawmakers see it as crucial for oil policy.

"The economic policy, in which oil comes in the top of the list, must be subjected to national standards and in the favor of Iraq and Iraqis' interests as a top priority," said Saeroon's Awid.

Sadr's Saeroon coalition, which includes Iraq's communists, won 54 seats out of 329 filled in total, according to Iraq's Independent High Electoral Commission. But Saeroon doesn't have enough seats to form a government on its own, leading to uncertainty over future oil policy.

Hayfaa al-Ameen, a Communist Party member elected with Saeroon from Dhi Qar, said the new national oil company "will have the final decision regarding the oil so we can get rid of the oil contracts and licenses as they must be changed because they have severely affected Iraq."

Oil deals signed by the Kurdistan region are also in doubt. Kurdistan's independent oil sales are viewed negatively by most political leaders in the south, where most of the country's reserves are located.

Diya al-Hashimi, a Sadr ally on Dhi Qar's provincial council, says Kurdistan's oil deals are "illegal."

--Staff reports,
--Nick Coleman,
--Edited by Jonathan Dart,

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