As of late-July 2020, Iraq continues to struggle with the severe consequences of the Covid-19 (Coronavirus) pandemic with its number of confirmed cases exceeding 110,000. Although Iraq has shown a relatively lower number of confirmed cases compared to other neighbouring countries, as a war-torn country with little investment in its health sector and fragile political instability, it holds the third-highest Covid-19 related fatality rate in the Middle East and North Africa (MENA) region.
The oil and gas sector, which contributes more than 90% of government revenue in Iraq, is under considerable pressure in 2020. The operational disruptions of a number of Iraqi fields coupled with the country’s commitment to OPEC+ agreement for production cut will cause Iraq oil production in 2020 to fall by approximately 18% from previous expectations. Furthermore, complying with OPEC+ cuts for the next two years will mean a slow production ramp up is predicted by mid-2022.
Iraq’s upstream sector currently has more than 75% of its produced crude oil operated by international oil majors, and these companies have scaled back spending on developing oilfields in the country due to current market volatility. As a result, Iraq’s upstream sector will not see significant investment in 2020. The investments post 2020 will depend significantly on a market recovery and the economic viability of current developments under revised long term oil and gas prices.
Although under the current oil price of $45/bbl almost all producing oil and gas fields in Iraq will be profitable in 2020 thanks to generally low lifting costs, the upstream post-tax cash flow will be severely reduced. In addition, the government revenue from oil and gas productions in 2020 is estimated to be approximately half of that earned in 2019. Should the oil price increase to ~$55/bbl, fiscal take from upstream operations would return to 2019 levels. However, due to constrained production and a relatively slow ramp-up, this is forecast not to happen until 2024.
As a heavily oil and gas dependant nation, Iraq is under significant pressure in 2020 as OPEC+ cuts, Covid-19 disruptions and weakened oil and gas prices slash much needed fiscal revenues. This in turn is expected to negatively impact Iraq’s macro-economic stability, as GDP growth and unemployment suffer in 2020. The long term pace of recovery will depend upon oil and gas price improvement, reinvestment from the major international companies and Covid-19 control nurtured by political stability.