Iraq seeks a larger OPEC quota due to revenue challenges and new oil investments.

An economic crisis triggered by the Iran war, along with a renewed wave of investment from major oil companies, is pushing Iraq to aggressively seek a higher oil production quota from OPEC, which may lead to conflicts within the organization.

This demand from Baghdad compounds the difficulties facing the Organization of the Petroleum Exporting Countries, which is still dealing with the ramifications of the conflict and the unexpected exit of the United Arab Emirates after almost six decades of membership.

The war resulted in significant export reductions, heightening tensions among key Gulf members of the group.

Iraq, a founding member of OPEC and its second-largest producer, experienced a substantial economic downturn as oil revenues, crucial for state funding, dwindled.

"Iraq’s request for a larger OPEC quota is largely a reaction to rising economic pressures," stated an unnamed Iraqi energy advisor due to the sensitive nature of the topic.

"Disruptions in exports and losses related to the war have intensified the demand for increased production."

With a fragile truce between the U.S. and Iran possibly reopening the Strait of Hormuz, Iraq is eager to restore its financial resources and is exploring all options if its OPEC quota is not significantly raised.

Sources indicated that Iraq has even contemplated leaving OPEC, though Prime Minister Ali Faleh al-Zaidi remarked in a recent statement that such discussions have not occurred.

The belief that Iraq should profit more from its oil assets has been bolstered by a series of multi-billion-dollar agreements signed with oil companies that had previously avoided the region due to instability.

BP has pledged up to $25 billion to redevelop four major fields in Kirkuk. TotalEnergies is engaged in a $10 billion project in Basra. ExxonMobil is set to develop the expansive Majnoon field, and Chevron is also considering a return.

However, despite these commitments and a potential easing of quota restrictions, some experts doubt Iraq can meet its goals due to significant infrastructure needs and ongoing execution risks.

Iraq's economy, heavily reliant on oil, is particularly distinctive among Gulf oil-dependent states.

According to World Bank statistics, oil accounted for 88% of Iraq's government revenues last year, one of the highest ratios in OPEC. In contrast, Saudi Arabia relied on oil for about 55% of its governmental revenue, according to finance ministry data.

The impact of the war has been compounded by Iraq's inability to access alternatives to the Hormuz Strait for substantial oil exports. In May, Iraq produced 1.48 million barrels of oil per day, significantly down from nearly 4.2 million bpd in February before the closure of the waterway.

The International Energy Agency notes that Iraq has the capability to produce 4.9 million bpd and could achieve that output within 90 days, representing an excess of 500,000 bpd—valued at approximately $36 million daily at current prices—over its July OPEC quota of 4.378 million bpd.

"From Baghdad's viewpoint, the message is clear: we require more barrels and greater revenue," the Iraqi energy advisor stated.

In terms of future ambitions, Iraq aims to significantly enhance its production capacity beyond its existing OPEC quota levels.

Three Iraqi oil officials indicated that the target is to reach a production level of 7 million bpd in the coming years.

Major companies like BP, TotalEnergies, ExxonMobil, and Chevron have positioned their renewed interest in Iraq as long-term growth opportunities that grant access to new resources. However, experts warn that achieving new targets will necessitate even more investment.

Prime Minister al-Zaidi, who assumed office last month, has underscored the importance of revitalizing Iraq’s economy and attracting foreign investment as central to his plans. Supported by U.S. President Donald Trump, he will travel to Washington in mid-July and has assured that U.S. companies interested in operating in Iraq will be prioritized.

This is not Baghdad’s first ambitious endeavor. Past attempts to increase capacity have encountered delays and challenges, and skeptics remain cautious this time as well.

"Achieving 7 million bpd faces significant obstacles and appears overly optimistic," noted Mercedes McKay, a senior upstream analyst at Energy Aspects, emphasizing that export infrastructure limitations will persist in hindering the speed at which new capacity can be activated.

A previous and more ambitious initiative aimed at raising capacity to 12 million bpd was curtailed in 2012 after international companies opted for reduced output targets, citing high natural decline rates, low recovery factors, and inadequate infrastructure investment.

Attracting the level of investment necessary to develop oil fields and address the infrastructure issues that have previously impeded capacity increases will prove challenging.

Moreover, Iraq continues to grapple with the perception issues that have previously made foreign firms hesitant, as pointed out by Mohammed Abbas, a former manager at the state-owned Basra Oil Company who is now an energy consultant.

"The sector is still burdened by regulatory uncertainty, security issues, political instability, and delays in project execution," he remarked.