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Iraq, one of the oil producers worst hit by the oil price crash, is proposing that all foreign oil firms operating in OPEC’s second-largest producer cut their budgets by 30 percent on the condition that crude production levels do not suffer, Reuters reported on Friday, quoting local officials and industry sources.
Iraq is struggling at oil below $30 a barrel, and its oil ministry is having trouble repaying international oil companies that develop major oil fields in the southern part of the country. Foreign firms who develop Iraqi oil fields do so under service contracts and are being paid a fixed fee in U.S. dollars for their oil production.
Now that Iraq’s fellow OPEC member Saudi Arabia signals a wave of extra oil supply to the market and the coronavirus pandemic batters global oil demand, oil prices in the $20s are utterly unsustainable for Iraq’s oil revenues and total budget income, much of which depends on income from oil exports.
The foreign oil firms have received the letter from Iraq asking for a 30-percent cut in budgets, but they have not made a decision yet, a source with a foreign oil company told Reuters.
Foreign oil operators in Iraq are also looking for savings from their suppliers.
ExxonMobil, for example, has already asked all its suppliers in Iraq to cut costs, the U.S. supermajor said in a letter to those suppliers seen by Reuters.
Iraq, which relies on oil revenues for 95 percent of its budgetary income, is one of the least diversified economies in the Middle East. It will likely have to enforce strict austerity measures after its fellow OPEC member and the cartel’s de facto leader, Saudi Arabia, launched an all-out oil price war with Russia.
According to Moody’s, Iraq is one of the most vulnerable oil producers in this price crash and could see its fiscal revenues and exports drop in 2020 by more than 10 percent of GDP this year.
