Despite the fact that production and export figures presented by Iraqi sources are showing a significant improvement, optimism should be tempered.

Iraq continues to head towards a major showdown between the two main political rival blocks, led by Prime Minister Al Abadi and former PM Al Maliki. Both are currently in a race to lead the country, while being confronted by internal and external threats.

Iraqi oil production and export figures are showing very positive developments, even though internally, the country is teetering on the brink. The latest data from the Iraqi ministry of oil shows that it has boosted its southern crude oil exports to 3.583 million b/d in August, 40,000 bpd higher than in July. Since the OPEC meeting in Vienna, Baghdad has been pushing to increase its total production to a three-month average of 3.549 million b/d, an increase of 109,000 b/d from the first five months of 2018.

It is surprising to see that even with continuing unrest in the Basra region, exports from its southern terminals are up. Loadings from the Khor al-Amaya terminal have been suspended since the start of 2018. Iraq’s State Oil Marketing Organization (SOMO) reported that 2.727 million b/d of Basrah Light have been shipped from the terminals, along with 856,000 b/d of Basrah Heavy crude. At present another seven tankers have berthed, while four are waiting for their turn, with a total of around 7 million barrels.

Northern Iraqi oil figures are also promising, as exports from the semi-autonomous Kurdistan Regional Government to the Turkish Mediterranean port of Ceyhan have been growing. Kurdish sources indicate that the KRG is currently exporting 445,000 bpd to Ceyhan, which is a 40 percent increase in comparison to July. Government oil production in the north however is still blocked, as there is no agreement between Baghdad and the KRG. A potential 200,000 bpd is currently not being exported due to this issue.

The future could, however, be less bright than the above data suggests. The country is facing a total shutdown if the competing political blocks are not able to reach a deal in the parliament soon. Several days ago the Iraqi parliament met for the first time since the May elections. At present, current Prime Minister Haider al-Abadi is still trying to reach a majority coalition, but has, until now, been blocked by his rivals, led by former Prime Minister Nouri al-Maliki. After several heated discussions, no solution has been reached.

Al Abadi is fighting to stay in power, having already reached a coalition agreement with Muqtada Al Sadr’s Sairoon movement. Al Sadr, a powerful Shi’ite cleric, has warned the government that his patience is running out. Al Sadr, mainly known for his hardline position and power hunger, could be the deciding factor in the current power struggle. He has also become one of the main supporters of the ongoing violent protests in and around the southern Iraqi city of Basra, where protesters are fighting Iraqi security forces in a bid to force the Baghdad-based government to take action on food, water and power shortages in the country. In recent weeks, dozens of protestors have been killed and many more have gotten injured in numerous protests that are now threatening to spill over into the whole southern part of Iraq. Related: Saudis Boosted Oil Production To 10.424 Million Bpd In August

Nouri Al Maliki, the former PM, has been able to form an alliance with militia commander Hadi al-Amiri, the leader of the Shi’a militia Hashd al Shaabi. The latter is strongly supported, and arguably led by, Iran’s Islamic Revolutionary Guards Corps (IRGC). Tehran is not only trying to consolidate its power position in Iraq, but is also attempting to influence the government to move away from the Saudi led power block in the region.

Adding further fuel to the fire, the Hashd Al Shaabi stated that they will be targeting U.S. and other foreign forces in Iraq. The militia stated that they will take action if non-Iraqis attempt to form a pro-Washington and pro-Saudi government in Baghdad. Iraqi media sources report that the statements were signed by the Badr Brigade, Asayib Ahl al-Hagh, Kata’ib Sayyid al-Shuhada, Kata'ib Jund al-Imam, Ansar Allah al-Awfiya’, Saraya Ashura, Saraya Ansar al-‘Aqeeda, Saraya Khurasan, and Kata’ib Imam Ali. All these groups are known to be supported and directed by Iran.

The West has put its support behind Al Abadi, who is seen as a weaker politician than his predecessor Al Maliki. Several Western analysts have stated that Al Maliki has been much more focused on tribal and sectarian conflicts, while Al Abadi has a more open (or weaker) position. The U.S. and E.U. are still partly blaming Al Maliki for having supported the pro-Shi’a power struggle, leaving other sectarian and religious groups behind. In the eyes of the West, this pro-Shi’a policy has created a breeding ground for terrorism and was one of the reasons behind the rise and success of IS/Daesh in Iraq, as Sunni and other groups in the country were left behind.

Western analysts, however, need to keep an eye on the ongoing power struggle as the outcome will not ease the growing resentment among the Iraqi people. The distrust or outright hate of a growing group of voters has already led to unrest in the oil-rich Basra region. The fall-out of these ongoing clashes and violence between the Iraqi army and the protestors will almost certainly lead to a movement resisting any new government based on the old guard. Related: Can We Expect An Oil Price Spike In November?

At the same time, it will lead to a possible violent movement against Iranian backed political parties and militias in other regions. Clashes between these groups have already been reported, but a further increase in violence could lead to a new civil war, in which Iran will be engaged fully. Looking at the current situation in Syria and Lebanon (Hezbollah-Israel), Tehran will likely not be willing to remove part of its hold on Iraq. The link with Baghdad, the Hashd Al Shaabi and other militias, are of immense strategic importance to the struggling regime in Tehran. Renewed fighting is to be expected, especially if the ongoing power implosion in Baghdad will give Kurdish and Sunni groups the option to counter.

A further escalation on the ground between government security forces and protestors could lead to a shutdown of oil fields and ports. At the same time, increased bloodshed could lead to direct confrontations in Baghdad and other areas. Such an escalation could trigger Iranian militias and proxies to engage as the Iranian hold on the Iraqi government could be threatened.

In short, the current oil production numbers may look encouraging, but if the opposing parties in Baghdad fail to close a deal and address the problems in the South, oil exports could be seriously impacted.

By Cyril Widdershoven for Oilprice.com

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