The political turmoil in Iraq might represent a serious threat to the world’s oil markets, specialists said CNBC.
“While Iraqi production is usually fairly resilient to unrest, the current political environment is extraordinarily toxic and poses a considerable risk to the oil sector,” stated Fernando Ferreira, a director at Rapidan Energy Group.
After prominent Shiite Muslim cleric Muqtada al-Sadr announced his departure from politics on Tuesday, protests in Iraq erupted into a full-scale demonstration.
Sadr’s plea for calm has reduced the likelihood of an interruption in oil supply, but Ferreira warned that the conflict over control of the country’s Shia population is far from settled, and that civil upheaval in Iraq will continue to pose a threat to oil markets on a regular basis.
“Prices could rally $5-10 on Iraqi disruptions, possibly more as low liquidity is driving bigger swings than usual,” he made a projection.
Slips in Iraqi oil output may have a substantial impact on the global oil market, which is already under pressure from low oil stockpiles and the failure of major OPEC members to achieve their quota commitments, according to Timothy France, a senior oil market analyst at Refinitiv.
“Even partial declines in Iraqi oil output and exports may have a significant upward impact on crude benchmark prices in Asia and Europe,” stated France.
Averaging 100.8 million barrels per day, the OPEC predicts that by 2022, there would be a significant increase in global oil consumption. According to data from Refinitiv, Iraq produces about 4.5 thousand barrels of oil per day, and its current exports account for roughly 3.5% of the world’s demand.
″The unrest we’ve seen in recent days has been mostly concentrated in Baghdad and southern Iraq, which exports 3.3 thousands to 3.4 thousand barrels of oil per day — a little over 3% of the global market,” France added further.
India and China
A reduction in Iraqi crude oil shipments will have a significant impact on the physical supplies of oil in the Chinese and Indian markets, France said CNBC by email.
“China and India are top importers of Iraqi crude oil, receiving an estimated 797,000 bpd and 817,000 bpd in August,” France stated.
Ferreira continued, saying that the OPEC+ decision-making procedures might become more circumspect as unrest grows. The group will convene on September 5 and includes producers from OPEC, Russia, and other allies.
”[The unrest may] encourage ministers to defer making adjustments to production quotas until there’s more clarity on the direction of geopolitical risks threatening the oil market,” he said.
There have not yet been any significant disruptions
Despite the alarming numbers, both analysts claimed there have not yet been any significant delays to Iraq’s oil production. “Iraqi crude oil exports have averaged 3.53 million barrels per day. Weekly data export shows no sign of a slowdown,” said France. “Tankers are currently [still] loading at Basrah Oil Terminal.”
“Refinitiv’s historical export data shows no major export outages at the Basrah Oil Terminal dating back to 2014. During this time Iraq has arguably endured more severe security threats than it is today.”