Iraq's crude output rebounded in October, but the recovery looks more fragile than the headline numbers suggest. Baghdad relies on costly export workarounds and is weighing new routes, including a revived pipeline to the Red Sea through Saudi Arabia.
Iraq's nationwide crude production rebounded to 4.22 million barrels per day (bpd) in October, with 3.95 million bpd from the south and 265,000 bpd from the Kurdistan Regional Government's fields. Crude exports surged 9.5% month-on-month, averaging between 3.35 million bpd and 3.5 million bpd.
However, the author of the OilPrice.com analysis calls that picture misleading. Both figures sit around the levels seen before the Strait of Hormuz closed, yet lengthy well shut-ins since 28 February have caused short-term capacity losses at several fields and potentially permanent damage to others.
Output pressure builds as revenue drops
A senior source who works very closely with Iraq's Oil Ministry told OilPrice.com that output drops in key fields are less obvious because the government is pushing production everywhere. According to that source: "they're there and they'll show up increasingly as time goes on"
The pressure to keep pumping is unlikely to ease soon. Iraq's budget deficit soared 346 percent in the first nine months of the year, driven by a 50.8 percent year-on-year drop in oil revenues.
Trucks and ship-to-ship transfers carry the exports
Iraq now trucks a collective 200,000 bpd from the south to collecting stations at Sarallu and Kurdistan's Khurmala junction. There, an additional 175,000 bpd of local Kurdish crude and 125,000 bpd of Kirkuk crude are blended with it, and the resulting 500,000 bpd moves north to Turkey's port of Ceyhan.
In the south, Baghdad's State Oil Marketing Organization and international buyers are relying heavily on shuttle-shipping, ship-to-ship transfers in the Gulf of Oman and smaller vessels under heavy military protection. The author describes the current system as extremely expensive to operate and highly exposed to Turkey, the KRG and Iran.
Baghdad eyes a federal pipeline and a Red Sea route
One alternative is the Kirkuk-Nineveh pipeline, which is structurally complete and undergoing initial system testing. Its design capacity is 350,000 bpd, and final pressure tests will take a few more months.
A longer-term option is the Iraqi Pipeline in Saudi Arabia, which Saudi Arabia last week gave preliminary approval to revive. The 1,568-kilometre line runs from the Zubair oilfield in Basra to the Al-Mu'ajjiz terminal near Yanbu and has a design capacity of 1.65 million bpd. Riyadh has said it favours building a replacement line and that Baghdad should cover part of the cost.
Source: Oilprice.com
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