Analysts told CNBC that Iraq’s political turmoil could pose a significant risk to global oil markets.

“Although Iraqi production is generally quite resilient to unrest, the current political climate is exceptionally toxic and poses considerable risks to the oil sector,” said Fernando Ferreira, director of Rapidan Energy Group.

These concerns come on the heels of escalating protests in Iraq on Tuesday after powerful Shia Muslim cleric Muktada al-Sadr announced his resignation from politics.

recurring risk

While the risk of oil supply disruptions has subsided after Sadr’s call for calm, Ferreira cautioned that the power struggle between Shiite factions in the country has not been resolved, and that civil unrest in Iraq is a recurring one for oil markets. The risk will remain.

“On Iraqi disruptions, prices could move up to $5-10, possibly with low liquidity driving a higher-than-usual swing,” he speculated.

Timothy France, a senior oil market analyst at Refinitiv, said the decline in Iraqi oil production could be significant, with already low oil inventories in global oil markets and key OPEC members failing to meet quota commitments.

“Even a partial decline in Iraqi oil production and exports could have a significant impact on benchmark crude oil prices in Asia and Europe,” France said.

According to OPEC, global oil demand is projected to average 100.8 million barrels per day in 2022. According to data from Refinitiv, Iraq produces about 4.5 thousand barrels of oil per day, and the current export volume accounts for about 3.5% of global demand.

“The unrest we have seen in recent days is mostly concentrated in Baghdad and southern Iraq, which export 3.3 thousand to 3.4 thousand barrels of oil per day – a little over 3% of the global market,” France said.

China and India

The decline in Iraqi crude exports will severely affect physical supplies of oil to the Chinese and Indian markets, France told CNBC in an email.

“China and India are the top importers of Iraqi crude, receiving an estimated 797,000 bpd in August and 817,000 bpd in August,” France said.

Ferreira said growing unrest could also bring more caution to OPEC+ decision-making processes. The group, whose members include OPEC, Russia and affiliated manufacturers, is due to meet on 5 September.

“[The unrest may] encourage ministers to make adjustments to production quotas until there is more clarity on the geopolitical risks to the oil market,” he said.

no major disturbances so far

Despite the warning figures, both analysts said there were no major disruptions to Iraqi oil production so far. “Iraqi crude oil exports average 3.53 million barrels per day. The weekly data shows no signs of export slowdown,” France said. “Tankers are currently [still] loading at Basra Oil Terminal.”

“Refinitiv’s historical export data shows no major export outages at the Basra Oil Terminal prior to 2014. Iraq endured more serious security threats during this time than it is today.

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