Iraq and Iran are negotiating to reopen a key oil transportation route

Iraq’s oil minister, Hayyan Abdul Gani, said Tuesday that the federal government is engaging with Iran in an effort to persuade Tehran to allow some Iraqi tankers to pass through the Strait of Hormuz.

Unlike Saudi Arabia and the UAE, Iraq has no option—even partially—to bypass the Strait of Hormuz, which has been closed for more than two weeks. This has forced Baghdad to cut oil production because the Gulf region’s storage facilities and available tankers are full.

More than a week ago, Iraq was the first country to announce that it had cut crude oil output due to the de facto blockade of the Strait of Hormuz.

Last week, Iraq said it would maintain crude oil production of about 1.4 million barrels per day because the war disrupting the Persian Gulf continued to paralyze its export routes. Before the war, as the Organization of the Petroleum Exporting Countries’ second-largest producer after Saudi Arabia, Iraq produced more than 4.4 million barrels per day.

But because all of this oil cannot be shipped out of the Gulf, Iraq and other major oil producers have been forced to cut upstream output. According to estimates in the International Energy Agency’s monthly report released last week, the initial loss of about 5 million barrels per day has risen to about 10 million barrels per day.

For Iraq, the situation is even more severe than for other oil producers in the Gulf—its dependence on oil revenues is the highest in the region, and unlike Kuwait, the UAE and Saudi Arabia, Baghdad does not have a large sovereign wealth fund to rely on.

Therefore, Iraq is also racing to restore a northern oil export route that will transport crude oil directly from the Kirkuk oil fields to the Mediterranean port of Ceyhan in Turkey, because the southern export route via the Strait of Hormuz has effectively been closed for weeks.

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Byline: Zhang Jun SF065