BMI View: Iraq is offering Jordan discounted crude in an effort to restart exports and create closer ties between the two countries. Jordan is a crucial link in Iraq's plans to create new export routes, while could also be a larger crude market and a gateway to Egypt. However, with little progress being made on the security situation in Syria and western Iraq, we envisage any new pipeline infrastructure will be a target for militants and protestors, potentially making it an unreliable export route and adding limited diversity to Iraq's export routes.
According to Iraqi Oil Minister, Abdul Kareem Al Luaibi, the country is ready to restart oil exports to Jordan, offering preferential prices. Due to the relatively low volumes of oil sent from Iraq to Jordan, exports currently take place via truck. However, recent disruption in the Anbar Province, due to spill-over insurgency from the Syria conflict, put a halt to deliveries as passage for oil trucks was unsafe.
Al Luaibi has now announced that the route through Anbar is safe and secured, and that Iraq is ready to restart exports to Jordan. Further incentivising Jordan to return to Iraqi crude, a hefty discount is being offered. Under previous contract terms, Iraq supplied around 10,000 barrels per day (b/d) of oil to Jordan at a discount of US$18 per barrel to global prices. The new offers from Baghdad are reportedly offering as much as 20,000b/d at a discount of US$20 per barrel to global prices. Iraq is now awaiting confirmation of a Jordanian company for crude transportation before exports restart.
Iraq's attempts to woo Jordan come as the country is becoming an increasingly important potential export route for Iraqi oil. The proposed growth in Iraqi oil output- targeting export capacity of 4.7mn b/d in 2015 and 9mn b/d in 2020 - will require new outlets to reach global markets. Currently, the Basra port is able to export between 4 and 4.5mn b/d, while the Kirkuk-Ceyhan pipeline can export a maximum of 500,000b/d. However, disruption to the northern route has seen exports via the pipeline to Turkey at around half potential volumes.
|New Take Away Capacity Needed To Meet Ambition|
|Iraq Oil Production ('000b/d)|
With other neighbours Iran and Saudi Arabia in no need of oil imports, and conflict in Syria showing no signs of abatement, Jordan remains the only option for Iraq to diversify its export routes over the medium term. A pipeline into Jordan will enable Iraq to access the Rea Sea through the port of Aqaba adding a potential new seaborne route to exports from Ceyhan and Basra.
On March 6 Jordan, Iraq and Egypt met and agreed to study oil and gas transfer projects between the three countries. Negotiations included extending an Iraqi oil pipeline from Basra to Aqaba and on to Egypt, potentially adding two new pipeline served market to Iraq's customers. Supporting this link will be the demand from the Jordanian refining sector, which could take as much as 150,000b/d of Iraqi crude, while Egypt has also shown an interest in refining Iraqi oil.
Security Issues Weigh On Progress
However, while we see plans to expand regional co-operation to benefit Iraq, Jordan and potentially Egypt, the proposed pipeline projects will be challenging to complete. The conflict in Syria shows few signs of a solution and we expect instability to plague the region at least for the foreseeable future. Spill over from Syria into Nineveh has seen the Kirkuk-Ceyhan pipeline increasingly targeted by insurgents with 54 attacks in 2013 alone. New pipeline infrastructure through the Anbar province to Jordan would also likely be a central target.
Furthermore, extending this pipeline into Egypt would mean passing through the Sinai Peninsula, another region struggling with security issues. Current proposals call for the Basra-Aqaba pipeline to be completed by 2017, which is a feasible timeframe and one that could be crucial to Iraq's growing export ambitions. However, if the pipeline is targeted in the same manner as the Kirkuk-Ceyhan pipe, this proposed new export route to the Red Sea could prove similarly unreliable and offer little upside to Iraq's export capability.