Compliance by OPEC+ to cuts has markedly improved between Q1 and Q2.

However, Iraq remains largely behind everyone else. On average, for the first six months of the year, Iraq has over produced by 220, 000 b/d above its ceiling of 4 million b/d. They have failed to adhere to their compensation plan, which was submitted to OPEC, and they are yet to submit a new schedule on how they will compensate. The idea is to do it into 2025, meaning any uplift from their new quota will be less, if they attempt.

Why do we have this extra production from Iraq?

There are two main reasons. First, there is an overhang in federal output, meaning production from the southern and central regions. This started in April 2023 when the pipeline to Turkey via the Kurdistan region stopped. There were many shutdowns in Kurdistan by independent producers, and the federal government wanted to take advantage of that by adding barrels in the South and exporting them through its Gulf terminals, and they have been slow in curbing that output. The second factor is a rebound in Kurdish output itself by independent oil companies, which Baghdad has no control over because they do not recognize these contracts. The central government does not want to take on that burden by reducing its own production to comply with OPEC+ cuts because that would reduce exports and be financially detrimental to the federal treasury. So, this has created an impasse, and this is why Iraq promises to reduce its production but cannot deliver.

Where does the relationship between Turkey, Kurdistan, and Baghdad stand today in terms of facilitating oil exports?

Many people misunderstand the problem, thinking it’s a state-level issue between the three countries. Turkey and Iraq have practically agreed on restarting exports, and the Erbil government is ready to participate. However, several factors complicate this. One issue is Baghdad doesn’t recognize production-sharing contracts. On the other hand, Baghdad and Kurdistan are reaching agreements on the latter’s share of federal government spending, which is alleviating some of Erbil’s economic problems. This is also giving Baghdad some breathing space because it is not in its best interest right now to restart exports in the North - about 450, 000 to 490, 000 b/d, including 70, 000 to 90, 000 b/d of Kirkuk crude. Baghdad doesn’t want to send the wrong message to OPEC+ as it could complicate compliance issues.