Iraq’s turbulent economy and its oil caps compliance are difficult issues for Opec to address

(The National) From his third-floor office in eastern Baghdad, Iraqi Oil Minister Ihsan Abdul Jabbar can see the rowdy protesters below as they march towards Tahrir Square, the symbolic heart of Iraq’s latest uprising.

On Sunday, thousands of Iraqis again gathered with national flags at the square, across the Tigris river from the heavily-fortified Green Zone, where the US has its embassy. Their list of grievances was long: corrupt politicians, daily power cuts, dilapidated hospitals, crumbling roads and a lack of jobs.

“We want our country back!” they chanted.

Iraq may be the world’s third-biggest oil exporter, but its economy is cratering after the coronavirus pandemic sapped global demand for energy and caused prices to collapse. The state’s finances are so dire it can’t pay teachers and civil servants on time, threatening a repeat of the upheaval that last year brought down the government and saw hundreds of protesters killed.

That’s created a dilemma for 46-year-old Mr Jabbar, a chemical engineer and career oil man who is now caught between the demands of an angry population and the pledges made to allies in Opec, which is trying to bolster a fragile market by reining in supply. It needs major producers like Iraq to toe the line. For Iraq, restraining supply carries a massive economic – and political – cost. But breaking ranks is risky, too: it could mean lower prices for everyone.

Some Iraqis want the government to put them first by simply pumping more oil, a move that could unravel the finely calibrated output agreement; if a producer as significant as Iraq flouts the pact, there would be little to stop smaller ones doing the same.

“I waited more than 45 days for my so-called monthly salary,” said Ziyad Al Mustansir, a 44-year-old secondary school teacher in Baghdad. “The government should have looked after the country’s interests when it came to Opec. If such deals mean losses for the country, we shouldn’t go with them.”

Under a deal reached in April between Iraq and other members of the Opec+ group, Baghdad had to curb its daily production by around 1 million barrels – worth roughly $40 million – to 3.6 million.

The idea was that supply cuts would raise crude prices enough to make up for lost exports. While prices have more than doubled since the agreement was struck to $40 per barrel, they are still down almost 40 per cent this year, languishing at levels far below what Iraq needs to finance its budget. The government’s monthly revenue, at $3 billion, is less than half of what it was last year.

Iraq has already breached its output limit on several occasions and angered Opec+, which is led by Saudi Arabia and Russia.

Iraqi officials have repeatedly said they are committed to the agreement, that they are pumping in line and will compensate for over-production. But after earlier breaches, traders are watching closely for signs it will surpass the cap again.

“It will become increasingly difficult for Opec+ to maintain discipline as countries, especially Iraq, become more desperate,” said Tarek Fadlallah, the chief executive of Nomura Asset Management’s Middle Eastern unit.

All nations within Opec+ have been stung by oil’s crash. Russia’s ruble has lost almost a fifth of its value, Saudi Arabia tripled value-added tax to make up for shrinking oil income, and more than 60 people died this month during protests in Nigeria.

But Iraq, where oil accounts for almost all government revenue, is in about the worst position. Its gross domestic product will contract 12 per cent this year, more than any other Opec member under a production quota, according to International Monetary Fund forecasts.

It’s been in chaos for much of the period since the US-led invasion of 2003 that toppled Saddam Hussein, suffering civil war, an insurgency by Islamic State and a push by the Kurds for independence in the north, a major oil-producing region. And while Opec+ includes all of Iraq’s production in its calculations, the Kurdistan region has its own say over oil policy.

The latest crisis is causing divisions between politicians and Prime Minister Mustafa Al Kadhimi, who only came to power in May. His administration says it won’t be able to pay Iraq’s roughly 7 million public workers and pensioners next month unless parliament approves a law allowing the government to borrow an extra $35bn.

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