Report: Iraq is in urgent need for diversification in oil export routes

London, 19 January — A report by the London-based International Centre for Development Studies highlights the urgent need for Iraq to establish new and more secure oil export routes in light of escalating regional crises and maritime threats.

The report contains the following main points:

• The prolonged conflict in Gaza and daily strikes along the borders of Israel and Lebanon have heightened risks, particularly following the targeting of the U.S. bases in Iraq and Syria since October 7th. As a result, the maritime trade routes have become increasingly precarious with Yemen’s entry into the conflict, with the Houthis targeting ships associated with Israel or accessing its ports.

• Washington’s formation of a maritime military alliance aims to secure sea navigation and thwart attacks on commercial ships. The International Maritime Organization advised ships to avoid the Bab el Mandeb Strait at the Red Sea’s southern tip, further indicating the need for Iraq to consider alternative oil export routes.

• Iraq faces significant challenges with its current oil export paths. The seizure of an Iraqi oil tanker in the Gulf of Oman by Iran, bound for Turkish ports via the Suez Canal, underscores the vulnerability of the primary global oil supply artery. This incident, coupled with the inactivity of the Iraqi-Turkish oil pipeline since March 25, 2023, has resulted in over $9 billion in losses for Iraq and revenue losses for Turkey.

• Iraq exports approximately 3.4 million barrels of oil daily, with 85% flowing through Basra and about 15% via the Kurdistan Region to Turkey. However, the options for diversification are limited. Negotiations with Saudi Arabia to use the Yanbu port on the Red Sea have not yet yielded results, and the proposal to rehabilitate the Kirkuk-Banias pipeline faces challenges due to regional instability.

• The Iraqi government must explore safer and more cost-effective means to export oil, considering the proximity of Turkish territory to European markets. This need is amplified by Europe’s shift away from Russian oil due to the war in Ukraine. Bulgaria’s replacement of Russian oil with shipments from Kazakhstan, Tunisia, and Iraq, including 76,000 tons of Basra light oil this month, exemplifies this trend.

• Iraq’s reliance on oil export revenues, constituting over 90% of its budget, necessitates the return of Kurdistan oil exports to global markets and the consideration of exporting oil from central and southern Iraq through the Kurdistan Region.

• The incomplete Basra to Aqaba pipeline project, facing political pressures and targeting threats, and Turkey’s stance on expanding Iraqi oil exports, further complicate matters.

• As Iraq aims to increase its oil production to around 6 million barrels per day within five years, the diversification of export outlets becomes crucial. The country’s limited oil storage capacity and reliance on oil exports for revenue in U.S. dollars highlight the potential economic impact of any disruptions in major straits like Hormuz or Bab el Mandeb.

• In conclusion, the report emphasizes the necessity for Iraq to secure internal stability and regional balance to enhance its economy and develop opportunities for development, especially in light of the significant investments and advanced technologies required for large projects like the Faw Port and the Development Road.