Low oil prices wreak havoc on Iraqi revenues

EITI Report a stark reminder of how low oil prices affect Iraq economy.

Iraq’s parliament approved the national 2015 budget following weeks of debate about the effect that lower oil prices would have on the economy of OPEC’s second largest oil producer. Starting with an initial estimate of USD 60 per barrel (BBL) in earlier drafts, the budget was finally approved on the basis of a lower estimate, USD 56 per BBL. According to the latest report published by Iraq EITI, covering the fiscal year 2015, even this amount overshot the actual price by USD 10 per barrel.

Problems in the horizon

As the war on Daesh (also known as ISIS) continues around Mosul, the report reflects some of the broader challenges that the government will need to continue to tackle in the coming years.

According to data from the Ministry of Planning Records, quoted in the report, crude oil activities accounted for 33% of Iraq’s gross domestic product in 2015 while oil revenues continued to account for 84% of total revenues into the federal budget. Meanwhile, the report notes, “Iraq’s federal budget has increased to five times its size between 2004 and 2015”.

Revenues plummet as production increases

The 2015 EITI Report further shows that daily production of crude oil in Iraq increased from 3.1 m BBL/day barrels per day (BBL/day) in 2014 to 3.5 million BBO/day in 2015, bringing total production in 2015 up to almost 1.3 billion BBL in 2015. Of this, over 1 billlion BBL were exported in 2015, a slight increase from 918 million BBL in 2014. Despite this increase in production and exports, total revenue from sales of crude oil virtually halved during the same period, collapsing from USD 72 billion in 2014 to USD 37 billion in 2015. As a result, total revenues from the oil and gas sector to the state fell from roughly USD 84 billion in 2014 to just under USD 51 billion in 2015.

Unlike in other countries where production sharing contracts (PSC) are common, in Iraq the country’s oil remains the property of the government and companies are payed a fee for extracting it on their behalf. Under the current technical service contracts (TSC), this fee is fixed, meaning that low oil prices have a particularly damaging effect on the government’s income.

Total exports continued to fall in 2015

Less information available through the Ministry of Oil

Iraq EITI’s Report followed a decision by the Ministry of Oil in October 2016 to discontinue its regular publication of production data and oil sales on the ministry’s website. The Ministry of Oil’s decision followed weeks of bitter wrangling with OPEC about Iraq’s total production figures.

In the absence of regular information published by the Ministry of Oil, citizens will look to the EITI Reports like the one published in December 2016 to step in and fill the information gap. As EITI Reports are produced by an Independent Administrator and jointly published by representatives from the government, civil society and industry, the data provided can help promote informed debate on the basis of facts, rather than conjectures.

EITI Validation can help

Iraq is currently undergoing Validation (commenced on January 2017) under the EITI Standard. Validation is the EITI’s independent quality-assurance process.

Having previously demonstrated compliance with the EITI Rules, this is the first time that Iraq is being tested against the more comprehensive EITI Standard. Countries that undergo Validation can use the process to identify potential improvements in the governance of the sector. 

 

You can find the 2015 EITI Report of Iraq here.

For more information about the EITI process in Iraq, please visit the country page on eiti.org or consult the national EITI website.

Image shows the Victory Arch in Baghdad, taken in May 2014.