TORONTO: The Opec output cut regime, which began last week, has started to have an impact.

As per the deal, Iraq needs to reduce output by 210,000 barrels per day to 4.351 million bpd. But a row has erupted between the central government in Baghdad and the autonomous Kurdish region, on output cuts. Who needs to cut and by how much? And this is putting in question, Iraq’s compliance to the very agreement.

Late last week, Iraq Prime Minister Haider al-Abadi complained the autonomous Kurdish region was exporting more than its allocated share of oil. “ The region is exporting more than its share, more than the 17 per cent stated in the budget,” Abadi said.

However, as recently as Dec 22, Iraq had underlined its commitment to the output restraint deal. Iraq is fully committed to delivering on Opec’s Nov 30 agreement to reduce supplies, Oil Minister Jabbar al-Luaibi reiterated in Cairo during an Opec meeting. “ Kurdistan is within Iraq and we are in agreement,” emphasised al-Luaibi.

This was despite the fact that the Kurdistan Regional Govern­ment had underlined on Dec 5, it didn’t expect to make any significant cut in output because of the Opec accord.

Luaibi’s these remarks too were rebutted by KRG officials. On Dec 28, a Kurdish official denied that the Kurdistan Regional Govern­ment has agreed to abide by the Opec accord. “ The Kurdistan Region will continue its oil exports as before and has not decided to abide by the Opec accord,” Dilshad Shaaban, deputy head of the energy and natural resources committee in the Kurdistan Parliament, told Rudaw news agency. Shaaban added that the Kurdistan Region is not a member of Opec and currently has no oil deal with Baghdad to force it to abide by the agreement.

The relations between the Kurdistan Regional Government (KRG) and the federal government of Iraq have been tense since the beginning of 2014 after Baghdad blocked the federal budget share to the Kurdistan Region, accusing the KRG of seeking to sell its oil independently. Tensions hit a high in 2015 after officials from both sides accused each other of failing to abide by the terms of the oil revenue sharing deal struck in Dec 2014.

Conflicting reports from Baghdad too continue to cloud the horizon. Back on Dec 15, Wall Street Journal reported that contrary to slashing output from Jan 1, Iraq was actually preparing to boost its exports in January. Iraq’s national oil company, the State Organisation for Marketing of Oil (SOMO), had plans as of December 8, nine days after agreeing to cut production, to increase deliveries of its Basra oil grades by about 7pc compared to October levels, as per a detailed oil-shipment program viewed by The Wall Street Journal. Those oil shipments represent about 85pc of Iraq’s exports.

Iraq also needed to grapple with contracts with foreign oil drillers that include provisions that require the government to compensate them when production is curtailed for reasons beyond the drillers’ control, Reuters reported.

Government-imposed production cuts could trigger those provisions, according to Jessica Brewer of Wood Mackenzie. And until now, there are no signs that Iraq has reached a deal to cut output with oil majors BP, Exxon Mobil, and Royal Dutch Shell.

In the meantime, Libya, which isn’t party to the Organisation of the Petroleum Exporting Countries (Opec) cuts, is ramping up output. The country plans to ship nearly 1.9m barrels of oil this month from Sharara oil field. Libya has already increased its output to 685,000 bpd and has also resumed cargo loadings from key ports.

If sustained, the volume Libya is pumping today would be about 125,000 bpd higher than it was producing in October. And it planned to take output 900,000 bpd by early 2017, replacing about one-third of the supplies being cut by other Opec nations.

And meanwhile, rigs targeting crude in the US too rose last week to the highest level in a year. US oil output went up in October to 8.8m bpd, the highest since May 2016. Non-Opec Russia’s oil production in December too remained unchanged at 11.21m bpd, near a 30-year high, despite the commitment to cut output by 300,000 bpd in the first half of 2017. As per some reports Nigeria has also increased its output last month by 61,000 bpd.

Energy diplomats have a task in hand. They need miracles to achieve their objectives and balance the market in the New Year.

Published in Dawn, January 8th, 2017