Iraq's oil output likely to be affected by oil-gas barter deal with Iran: source

Iraq's oil production may be affected by a deal to pay for Iranian gas imports by bartering fuel oil and crude from Baghdad, a source from state oil marketer SOMO said July 12, even as OPEC's second-biggest producer grapples with the continued suspension of northern oil exports since March 25.

Iraq and Iran signed an agreement to barter crude and fuel oil from Baghdad with imported gas and electricity from Tehran due to difficulties in paying the US-sanctioned country, Prime Minister Mohammed al-Sudani said at live press conference July 11.

SOMO will handle the crude and fuel oil sales to companies nominated by Iran, the minister said.

Although implementing the oil-gas barter deal will take time, Iraq will most probably try to boost production from its southern mega fields to make up for the loss of output and continued suspension of exports via Turkey's port of Ceyhan, the SOMO source told S&P Global Commodity Insights.

SOMO has yet to receive details on the start of the barter deal, the amount of crude and fuel oil that will be exported to Iran or the crude grades that will be sold, the source said.

Spokespeople for the Iranian oil ministry and National Iranian Gas Co. couldn't be immediately reached for comment.

Rampant power cuts

Besides the suspension of northern oil exports, rampant power cuts in the federal region from lower Iranian gas supplies have plunged large swathes of the country into darkness, affecting oil production, the source said.

Output from the southern mega fields of Zubair, operated by Eni, and Rumaila, operated by BP, were affected by the power cuts that started at the end of June, the source said.

Once Iranian gas supplies are fully restored, power outages are likely to end and help return production at southern fields to normal levels, the source said.

Iraq pumped 3.985 million b/d in June, below its 4.22 million b/d OPEC+ quota, according to SOMO figures seen by S&P Global.

That is slightly higher than the 3.955 million b/d it pumped in May, when Iraq joined several OPEC+ countries in implementing a total of 1.66 million b/d of voluntary cuts that will run through till the end of 2024.

These voluntary cuts are on top of the 2 million b/d of OPEC+ curbs that started in November and will be carried through till the end of 2024.

Besides its adherence to the deal, OPEC kingpin Saudi Arabia is implementing an extra 1 million b/d cut in July and August that will see its output drop to about 9 million b/d, while Russia, which had already pledged a 500,000 b/d cut, said it would lower crude oil exports by 500,000 b/d in August.

The additional cut Saudi Arabia is implementing for July and August will take its output down to levels last seen in 2011, not including the pandemic years and the September 2019 drone attack on the Abqaiq crude processing facility.

Talks with Turkey

In June, OPEC+ production edged up 10,000 b/d to 41.34 million b/d, according to the latest Platts survey by S&P Global.

Since March 25, more than 450,000 b/d of Iraqi northern exports via Turkey's port of Ceyhan have been suspended after Ankara halted flows in the wake of an international court ruling.

There is no timeline for restarting oil flows via Ceyhan even after a Turkish technical delegation visited Baghdad to discuss the resumption of exports, the source said.

The technical team merely emphasized the need for more inspections and maintenance of pipelines in Ceyhan, which were damaged by an earthquake earlier in the year, the source said.

The suspension has affected the production of federally produced Kirkuk crude and Kurdish Test Blend from the semi-autonomous Kurdistan region.

On June 25, Baghdad started receiving about 50,000 b/d from Kurdistan's Khurmala field as part of an agreement to give Kurdish crude to SOMO in return for payments to Erbil as mandated by 2023 fiscal budget, the source said.

Kurdistan's Khurmala and Khor Mor fields represent some 40% of the region's total oil production, or approximately 160,000 b/d.