Iraq Is Giving OPEC a Headache

OPEC has an Iraq problem: the group’s second-biggest exporter is lurching between quota busting and production-crimping crisis, clouding the policy-making picture as ministers decide how long they need to extend output curbs.

After consistently exceeding its output quota all year, Iraqi production plunged in October when clashes between the federal army and fighters from the semi-autonomous Kurdish region disrupted fields in the disputed Kirkuk province. While the conflict has calmed, exports from Iraq’s northern fields remained 40 percent lower in the first half of November than before the fighting, tanker tracking data show.

The Organization of Petroleum Exporting Countries, due to meet next week in Vienna, is already grappling with volatile production in Nigeria and Libya, and Iraq adds another layer of unpredictability. For policy makers, the short-term disruption risks masking a longer-term truth: Iraq, which only got a production quota last year after decades of exemptions, has never felt comfortable with constraints and wants to maximize the country’s potential output.

“Production will remain volatile,” said Issam Chalabi, a consultant and former Iraqi oil minister. While it will be difficult for Iraq to replace barrels lost in the north quickly, Iraq’s “real intention is to reach the 5 million-barrel mark by year-end. Politics is the name of the game.”

The uncertainty makes it more difficult for OPEC to judge the global balance of supply and demand next year and make a decision about how long to extend supply curbs. The producers’ group is seeking to build consensus with non-members including Russia on whether to extend beyond March output cuts aimed at mopping up a supply glut.