Mike Douglas on the Importance of Keeping Petroleum Products Flowing into Iraq During COVID-19

Like many countries, Iraq has been hit hard by COVID-19. In fact, according to numbers from the World Health Organization from late May, those numbers were at 4,469 confirmed cases, with more than 160 deaths — and it appears to be trending upwards.

However, Iraq has another crisis on its hands during the pandemic, and it's related to their energy supply, notes Mike Douglas, who is the president and CEO of SKA International, a global supplier of fuel. Iraq has been hit with a barrage of power outages in recent years, made especially bad during the summer months when temperatures become almost unbearable. The coronavirus crisis has exacerbated the situation by dipping the country's revenues, which has led Iraq's health minister to call for emergency funds.

Iraq depends heavily on fuel from neighboring countries such as Iran to meet their transportation and power generation needs, with 2019 numbers stating that about 1.5 billion cubic feet of Iranian gas make its way to Iraq via pipelines. It also uses a vast amount of Iranian natural gas that accounts for a large portion of the country's energy needs.

Lack of Infrastructure a Challenge

Iraq has a challenge from "gas flaring" from its existing oil fields, which results in millions of cubic meters of natural gas from crude production being burned daily causing billions of dollars of lost revenue. This gas could be further processed and used domestically says Mike Douglas, as there has been insufficient investment in some petroleum-producing areas to make it usable.

As a result, Iraq ranked as the second highest in the world in terms of gas flaring, using less than half of its associated gas — that is, gas that is a byproduct from crude oil production.

Meanwhile, Iraq has looked at developing other gas fields along the Syrian border; however, progress was stalled due to security tensions.

Pressure to Become More Independent

While Iraq is a rich producer of oil, it still relies heavily on imports, notes Mike Douglas. In fact, well before the pandemic (between 2018 and 2019), imports from Iran nearly doubled to provide about 30% of Iraq's stockpile to produce electricity. Meanwhile, Iraq pays more for these imports than it does for its own domestic product.

The U.S. has put a lot of pressure on Iraq in recent times to achieve "energy independence" while it imposed sanctions on Iranian oil in November 2019. Analysts have said this was to remove some of the influence Tehran has in the region, allowing the U.S. to better take advantage of Iraq's energy reserves. Around the same time, the U.S. also pushed hard for Iraq to open up to American investment in its oil sector.

However, investment in the country's increased oil production has hit roadblocks. Part of this problem is that some western energy companies have lost confidence in boosting oil production in Iraq due to political tensions.

The U.S. had previously granted sanctions waivers of up to 120 days allowing Iranian gas to continue flowing to Iraq, but a more recent waiver was only for 30 days, presumably to put more pressure on Iran.

However, Iraqi officials say it will take at least a few years to build its own energy independence among the current and ongoing challenges. As it stands, some major energy-producing plants in Iraq still rely on Iranian gas to continue operations.

If the supply from Iran is curtailed or cut off, Iraq may need to turn to alternatives (such as diesel) that are more expensive and less efficient, says Mike Douglas of SKA International.

More Obstacles Ahead, says Mike Douglas

Oil prices took a dive as a result of the pandemic, which was bad news for Iraq's economy that relies heavily on oil exports.

While its output recently hit record levels of around 4.8 million barrels a day, it has also been reported that it plans to export about 3.6 million daily. That's because some of the biggest buyers of Iraqi oil including China maintained strong demand throughout March.

However, some of these oil-dependent countries have started to ramp up oil refinery as people return to work and Iraq is competing against other producers to feed large markets such as India. Meanwhile, says Mike Douglas other big markets such as the U.S. are seeing a growing demand for oil, as lockdowns lift — stressing the importance of maintaining the oil and gas supply chain.

The pressure is on for Iraq as the pandemic continues and the summer heat (and increased energy demand) is on the horizon.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes