Iraq’s race to boost oil exports won’t help it close widening budget deficit

Azzaman, January 15, 2015

Iraq’s plans to substantially raise its oil exports is not likely to increase its revenues and close the widening gap in its 2015 budget, analysts say.

Oil prices have been falling steadily in the past six months, prompting the government to lower its expectations for oil revenues which initially it estimated at $60 a barrel.

But prices are likely to drop to $40 a barrel or even lower in the absence of measures by major oil producers within OPEC and outside to reduce supplies.

Analysts say Iraq’s measures to produce as much oil as possible is in fact pursued by almost all oil producing countries, flooding the markets with the cheap oil and leading to further drops in prices.

Oil Ministry sources say Iraq is determined to ship “unprecedented volumes” of crude to international markets shortly to compensate for the loss of revenues from oil exports, which make up more than 90% of its income.

Iraq, they say, has readied its oil export infrastructure to allow for the shipping of 3.3 million barrels per day from the current 2.7 million, a surge of 500,000 barrels daily.

The boost is good news for the country’s oil industry but comes at a time of poor demand and low forecast for economic growth in the world’s most industrialized countries.

Iraq has stashed away more than $70 billion as part of its national reserves in the Central Bank but the government is reluctant to draw on them to meet its budget deficit.

The analysts warn that withdrawal from reserves is likely to negatively impact the value of the national currency, the dinar, against the U.S. dollar. The dinar has been stable so far despite the sharp fall in oil prices.