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Iraqi growth fuelled by energy

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IEA is preparing in-depth energy outlook for Iraq for release on 9 October

2 October 2012

This article appears in the latest issue of IEA Energy: The Journal of the International Energy Agency.

 

By Fatih Birol

Iraq’s improving stability and signs of economic progress provide the foundation for a major increase in oil production. But challenges remain to consolidate the gains made on economic and security issues, to resolve outstanding questions about the legal framework for hydrocarbon development at the national and regional levels, and to ensure that the necessary infrastructure for transportation, storage and export is in place. Thus far, Iraq’s oil production has grown from an average of 2.4 million barrels a day (b/d) in 2010 to more than 3 million b/d in mid-2012, the highest level in several decades, with oil exports rising to 2.5 million b/d.

The country’s hydrocarbon potential is immense. Proven reserves amount to 143 billion barrels, but the total resource potential is much larger: Iraq remains one of the least-explored major hydrocarbon resource holders. The largest share of output growth is set to come from major oil projects in the south of Iraq, for which the national authorities and international oil companies have signed technical service contracts. The Kurdistan regional government has also awarded contracts for exploration and development of areas in the north of Iraq; Baghdad contests the legitimacy of these contracts, but activity is, in many cases, under way.

Even conservative projections of Iraq’s production over the coming years imply profound effects on the Iraqi economy, as revenue from oil exports accounts for around 95% of government income and amounts to more than 70% of gross domestic product. Translating growth in oil receipts into tangible benefits for the Iraqi population will be crucial, with progress in resolving the continued and widespread shortages of electricity a particularly urgent task. Growing production of associated and non-associated natural gas, and a reduction in natural gas flaring, will provide a valuable source of fuel for power generation and, potentially, for export.

This year we are preparing our first-ever in-depth energy outlook for Iraq as part of our annual flagship publication, the World Energy Outlook. This work has been greatly facilitated by the support and close co-operation of the government of Iraq led by the Deputy Prime Minister for Energy, Dr. Al-Shahristani. As part of this collaboration, we have had a small team of Iraqi nationals seconded to the IEA for the duration of the project. We have also held consultations with senior officials, industry representatives and experts from all over the world, including through an expert roundtable meeting in London in March and a high-level workshop held in Istanbul in May, as well as fact-finding missions to Baghdad, Erbil and Basra.

Working on this project, including the experience gained during my visits to Iraq, has given me cause for hope, but also for concern. Hope because the timely development of the country’s hydrocarbon resources could fuel Iraq’s reconstruction and growth, but concern because in the absence of sustained higher levels of Iraqi output the global oil market could be headed for troubled waters.

I trust that once the special report is released on 9 October it will improve global understanding of just how important a role Iraq could play, as well as the very serious challenges that first must be overcome. 


The International Energy Agency (IEA) produces IEA Energy, but all analysis and views contained in the journal are those of individual authors and not necessarily those of the IEA Secretariat or IEA member countries, and are not to be construed as advice on any specific issue or situation.

Fatih Birol is the Chief Economist of the IEA and oversees the annual World Energy Outlook, the Agency’s flagship publication. He is also responsible for the IEA Energy Business Council, which provides policy makers with a business perspective on energy market issues. He joined the IEA in 1995 after six years in the Secretariat of the Organization of the Petroleum Exporting Countries (OPEC) in Vienna.

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