Stability In Iraq Will Be Good For Tanker Owners

Saudi Arabia has now promised to replace any disruptions in Iraq´s oil production capacity of around 2.5 million barrels per day, claiming it can raise its own output to over 10 mbd. Iraq has been a wild card in world oil supply ever since the war against Iran. From 1979 to 1981 Iraq´s oil production fell from 3.5 mbd to 0.9 mbd. Then, after a gradual increase, output again fell dramatically in connection with the war to free Kuwait and was reduced from 2.8 mbd in 1989 to only 0.3 mbd on average in 1991. After hovering at around 0.6 mbd in the mid-1990s before the UN oil-for-food and medicine programmes were introduced, Iraq´s production has lately touched 2.5 mbd, with several ups and downs.

Most of the country´s oil production setbacks in recent years have been regular half-yearly trimming of output, as the UN programmes had been based on 6-month sales income and not on sales volume. Other setbacks, such as the 0.7 mbd drop in May this year, have had to do with sabotage. At present the country´s exports go almost exclusively from the Gulf side. The export pipeline to the Mediterranean port Ceyhan has hardly been in use for quite some time. With a pre-war capacity of about 0.9 mbd, it will clearly have some negative impact on the tanker market when it is reopened, due to much shorter sailing distances to Western destinations compared with Gulf shipments.

However, this negative aspect could soon be more than compensated for by an increased willingness to resume and expand oil investments in the Middle East Gulf area at large. Gradually, more peaceful conditions in Iraq will increase confidence in the oil industry and benefit the whole region, making it an even more important supplier of oil in the future. More political stability in Iraq and neighboring countries, with varying degrees of domestic and foreign-based opposition, is likely to dampen somewhat the momentum in the general long-term drive to search for alternative oil supplies outside the Middle East as well as the increased focus on other types of energy. Political failure in Iraq will, on the other hand, turn out to be costly for the world economy and negative for the tanker market. Developments. in Iraq will continue to have significant market impact. Strong forces are engaged in the follow-up battle for Iraq´s future.

Jarle Hammer