Iraqi oil production falls 70% as Strait of Hormuz disruptions hit exports

Oil production from Iraq’s main southern oilfields has dropped by about 70% after the country was unable to export crude through the Strait of Hormuz amid the ongoing Iran war.

The development was reported by Reuters on Sunday, citing three industry sources and officials familiar with operations at Iraq’s southern oil facilities.

According to the report, production from the fields has fallen to around 1.3 million barrels per day, down sharply from roughly 4.3 million barrels per day before the conflict disrupted maritime movements through the critical oil transit route.

What they are saying

Officials said the sharp decline in output is largely due to storage constraints and export bottlenecks caused by the disruption in shipping through the Strait of Hormuz.

• “Crude storage has reached maximum capacity and the remaining output after the major cut will be used to supply the country’s refineries,” said an official with the state-run Basra Oil Company, which manages production and export operations from Iraq’s southern fields.

A senior official at Iraq’s oil ministry also warned that the situation represents a major operational challenge for the country’s energy sector.

• “This is the most serious operational threat Iraq has faced in more than 20 years,” the official said.

More insight 

Iraq is one of the world’s largest oil producers and a member of OPEC, with much of its crude output coming from large oilfields in the country’s south.

Before the latest disruption, production from those fields averaged about 4.3 million barrels per day, with a significant portion exported through southern terminals connected to global shipping routes.

• However, exports dropped sharply to around 800,000 barrels per day on Sunday, with only two oil tankers able to load crude due to restrictions on vessel movement through the Strait of Hormuz.
• Shipping data showed that two vessels — the Cospearl Lake and Yuan Hua Hu — each loaded roughly 2 million barrels of crude before leaving the terminals, while no additional tankers arrived afterward, effectively halting further oil flows from Iraq’s southern export facilities.
• Oil exports are critical to Iraq’s economy, accounting for more than 90% of government revenue and financing most public spending.

The disruption is closely tied to the country’s reliance on the Strait of Hormuz, a narrow maritime passage connecting the Persian Gulf to global markets and serving as a key route for Iraq’s southern crude exports.

Backstory

The disruption in shipping activity around the Strait of Hormuz comes amid heightened tensions in the Middle East following the war involving the United States, Israel and Iran.

Several international marine insurers recently suspended war-risk coverage for ships operating in parts of the Gulf and nearby waters after attacks on vessels and escalating military activity increased risks for shipping companies.

The lack of insurance coverage and security concerns has made many shipowners reluctant to sail through the area, leaving dozens of vessels waiting near the strait and slowing the movement of oil and liquefied natural gas shipments.

On March 3, the President of the United States of America, Donald Trump, signaled that the U.S. Navy may escort vessels through the Strait of Hormuz to prevent disruptions in global energy supplies.

However, Iranian authorities have denied claims that they formally shut down the Strait of Hormuz, saying the route remains open despite the heightened tensions.

What you should know 

The Strait of Hormuz is one of the world’s most important oil shipping routes, carrying roughly 20% of global oil and liquefied natural gas supplies.

Beyond the risks to shipping passing through the strait, the ongoing conflict has also led to attacks on energy infrastructure across the Middle East.

On Saturday, Israeli forces struck oil storage facilities in Tehran, marking the first reported attack on Iran’s oil infrastructure since the war between the two sides began.

Iran has also targeted oil facilities in several Middle East and Gulf countries where U.S. forces sometimes operate from.

• Nairametrics reported that Saudi Arabia’s state oil giant was forced to halt operations at a major refinery in the country’s Eastern Province after a drone strike linked to Iran’s retaliatory attacks disrupted facilities capable of processing more than 500,000 barrels of crude per day.
• In Qatar, authorities temporarily stopped downstream production after energy facilities in Ras Laffan Industrial City and Mesaieed Industrial City were hit in a series of strikes.
• The attacks have affected energy infrastructure across several Gulf countries, including the United Arab Emirates, Kuwait, Qatar, Bahrain and Oman.

Iran has since indicated that it would avoid targeting neighbouring countries unless attacks against it originate from their territories. (Nairametrics)