Oil

Iraq’s political turmoil poses risk to oil markets, says analysts

Supporters of Iraqi cleric Muqtada al-Sadr clash with security forces at Green Zone after Sadr supporters stormed the presidential palace in Baghdad, Iraq, on Aug. 30, 2022. The move came shortly after al-Sadr announced his total withdrawal from politics amid a months-long political crisis in the country.

Murtadha Al Sudani | Anadolu Agency | Getty Images

Iraq’s political turmoil could pose a significant risk to global oil markets, analysts told 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,” said Fernando Ferreira, a director at Rapidan Energy Group.

Those concerns come on the heels of escalated protests in Iraq on Tuesday, after powerful Shiite Muslim cleric Muqtada al-Sadr announced his resignation from politics.

Recurring risk

China and India

Physical supplies of oil in the Chinese and Indian markets will be acutely affected by a decline in Iraqi crude oil exports, France told CNBC in an email.

The Al-Gharraf oil field in Iraq’s southern Dhi Qar Governorate, on Aug. 24, 2022. In a global oil market already strained by low oil inventories and key OPEC members failing to meet quota commitments, slips in Iraqi oil production could be significant, said Timothy France, a senior oil market analyst at Refinitiv.

Asaad Niazi | Afp | Getty Images

“China and India are top importers of Iraqi crude oil, receiving an estimated 797,000 bpd and 817,000 bpd in August,” said France.

Ferreira added that growing unrest could also bring more caution to the OPEC+ decision-making processes. The group, whose members comprise OPEC, Russia and allied producers, is set to meet on Sept. 5.

“[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.

No major disruptions yet

Despite the cautionary figures, both analysts said there are no major disruptions to Iraqi oil output as yet. “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.”

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