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The US sanctions on Iran gave a great opportunity to Iraq, which
shortly after increased its target for crude oil production to 6.2
million b/d by early 2021 and nine million b/d by early 2024. The
additional volumes will allow Baghdad to cover part of the supply
gap created after Iran's collapse. To meet these targets, the
country will have to rely on the oil output from semi-autonomous
Kurdistan close to the northern borders of the country. The area is
still controlled by KRG, including the key pipeline which links
Iraqi production with Europe via the Turkish port of Ceyhan. The
risk of disruptions remains high, with Baghdad still paying to pay
KRG in exchange for its co-operation. To understand where the
additional Iraqi volumes could end up, this can be achieved by
reviewing current trade flows from the country and identifying some
of the changes observed since last year.
Iraq crude oil seaborne exports so far in 2019 (Jan-May)
in thousand b/d
Iraq has managed to recover and increase its output since 2015,
with seaborne liftings averaging around 3,700 thousand b/d since
early 2018, according to data by IHS Markit's Commodities at Sea.
However, the direction of these flows seems to have changed
dramatically since last year, primarily driven by global demand and
trade adjusting to the US sanctions on Iran and Venezuela, together
with the US turning into a net exporter of crude oil.
The latter has meant that the US has been absorbing
significantly less from Iraq, exactly as it has been observed along
with most other producers across the Middle East Gulf. Between
January and May 2019, Iraqi crude oil trade flows fell to 210
thousand b/d from around 375 thousand b/d in 2018. This is a
decline of around 45%. But the Middle Eastern country managed to
successfully replace US demand, as new opportunities appeared in
the market. The collapse of Iran since November 2018, allowed Iraq
to supply more barrels to India and European importers, which was
however bad news for the shipping industry, as the distance to be
covered fell significantly. Other Asian destinations and primarily
China have increased their imports from Iraq as well, especially
during periods when the country's grades were more appealing than
West African alternatives, due to competitive pricing. It's of
interest to note that Italy and Greece, in contrast to Turkey,
preferred to increase their flows from Iraq even when waivers on
sanctions were still in place, simply avoiding any Iranian barrels.
The rest of the countries earlier included in waivers, primarily
India, China and Korea, have only recently started switching away
from Iran to Iraq.
Posted 07 June 2019 by Fotios Katsoulas, Liquid Bulk Principal Analyst, Maritime & Trade, IHS Markit
