Hormuz exports blocked, oil storage tanks running out of space; OPEC's second-largest oil producer has cut production by 80%.

Ask AI · How will OPEC’s second-largest oil producer’s sharp output decline impact the global oil market?

China Financial News (March 26) (Editor: Bian Chun) Citing media reports from Iraqi energy officials, as the Iran war continues, Iraq’s oil production has fallen sharply, oil storage tanks have reached a high level and are at a critical point, and the country currently still cannot export crude oil through the Strait of Hormuz.

These officials said that the output of Iraq’s main oil fields in the south (where most of the country’s crude is produced and exported) has further declined to about 800,000 barrels per day, down about 80% from pre-war levels.

Industry sources previously said that earlier this month, because crude oil could not be exported through the Strait of Hormuz, production at Iraq’s main oil fields in the south had already fallen by about 70%, to around 1.3 million barrels per day.

Before the outbreak of the U.S.-Iran war, the production from these fields was about 4.3 million barrels per day. Iraq is OPEC’s second-largest oil producer, behind Saudi Arabia.

Informed officials said that Iraq has decided to further cut oil production starting Tuesday, and has asked BP (British Petroleum) to reduce output from its giant Rumaila oilfield by 100,000 barrels per day (i.e., reducing it from about 450,000 barrels per day to about 350,000 barrels per day).

In an official letter sent to BP, Iraq’s state-owned Basrah Oil Company said: “As our storage tank inventories are currently at a high level and at a critical point, please reduce the production and pumping volumes of the North Rumaila oilfield from the current level to 350,000 barrels per day starting at 09:00 local time on March 24.”

Iraq also asked Italy’s Eni to reduce output from its Zubair oilfield by 70,000 barrels per day, from the current 330,000 barrels per day.

Sources added that Iraq has also cut production at multiple state-owned oilfields.

Further cuts may be announced in the coming days

Iraqi energy officials warned that if the Strait of Hormuz crisis cannot be resolved, further production cuts may be announced in the coming days.

Last week, there was news that the Iraqi government and Kurdish authorities had reached an agreement to restart the Kirkuk–Ceyhan crude oil pipeline, restoring oil exports via the Turkish port of Ceyhan. Although this to some extent alleviates market concerns about a disruption in Middle East oil supply, the impact of restarting the pipeline on global supply is negligible.

Because of a dispute between the Iraqi government and the semi-autonomous Kurdistan regional government over the distribution of funds, the Kirkuk–Ceyhan pipeline has been basically shut down for many years.

(China Financial News, Bian Chun)