Lack of Tankers Forces Iraq to Start Shutting In Oil Production
High risks for transits of the Strait of Hormuz have severely limited the number of empty tankers in the Arabian Gulf, and Iraq has become the first GCC state to be forced to shut in production, just four days into the full-scale conflict between the U.S. and Iran.
Iraqi officials told Reuters on Tuesday that they have already cut output at the supergiant Rumaila field by 700,000 barrels per day; the West Qurna 2 field by 460,000 barrels per day; and the Maysan field by 325,000 ?barrels per day. The Shaikan field in the semi-autonomous region of Kurdistan has also halted operations.
In total, at least 1.5 million bpd of Iraqi output - more than one percent of all global oil production - is now shut in. The figure could rise to 3 million bpd within days. The Ceyhan pipeline to Turkey has been closed down as a precautionary measure, shutting off the only land export route; tank storage is running out; and with no tankers to fill, there is no place to put the oil. Even with record spot charter rates for VLCCs in excess of $400,000 per day, virtually all tanker tonnage is staying on the safe, eastern side of the Strait of Hormuz.
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The domestic political risk from a prolonged oil shutdown in Iraq could be serious. "If halting production and exports via Ceyhan and the Gulf persist for a single month, it is likely to lead to social and political upheaval in Iraqi streets, but also the Kurdistan Region," RUSI fellow Tamer Badawi told The National.
Iraq's cuts will be followed by parallel actions in neighboring states if the Hormuz closure continues, according to analysts at JP Morgan. Kuwait could be next, and likely has another 14 days of storage capacity left, the bank predicted. Mega-producer Saudi Arabia has more tank capacity and a longer runway, likely more than a month. But if the conflict continues, JP Morgan believes that within another two weeks, total GCC shut-ins could total 4.7 million barrels per day - roughly one quarter of the region's typical export volume.
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