A two-month-old news report has resurfaced again making headlines.
Iraq has overtaken Iran as OPEC’s second top oil producer, according to the International Energy Agency (IEA).

But eight weeks earlier, OPEC on its part reached that conclusion.
Figures vary, but the bottom line is the same. Iraq more or less pumped out 3.08 million barrels per day (bpd) in July — 15,000 bpd more than what it produced in June, while Iran recorded a 173,000 bpd drop to 2.82 million bpd, according to OPEC.

That is one of the chronic problems facing the world oil industry in terms of having real time, credible information on what is really happening in terms of supply and demand.

The discrepancy in figures between two leading organizations like OPEC and IEA is just the tip of the iceberg that is well spread all over.

The fanfare over the IEA report of Iraq overtaking Iran has something to do with the timing and of course, politics in the background, as it is the case that has to do with oil.

July is the month where the US sanctions on Iraq have really started to bite as Europe joined and even went a step further denying insuring Iran’s commercial oil deals.

So the message is that sanctions are working and working well. More importantly, the new item is sending another message that Iraq is emerging as an alternative to Iran in terms of providing supplies.

The question was and remains — to what extent that could happen, and can the oil market really trust Iraq becoming a reliable supplier for times to come?

Interesting enough to note that Iraq was supposed to have taken over Iran’s production back in February if a marine terminal facility was inaugurated at the time to provide loading facility that can handle 90,000 bpd day and absorb increased supplies from Rumailah and West Qurna fields.

Press reports spoke of Iranian pressures that led to postponement of the inauguration of the $ 1.3 billion facility that should be one of five that could handle an extra 5 million bpd when completed in an ambitious plan through 2017.

There is no question that Iraq has considerable proven reserves that needs tapping for the benefit of the country itself and its people, and guarantee supplies to the world’s growing demand.

Various figures are running around. Of the more than 50 different contracts from services to Exploration, Production, Sharing Agreements (EPSAs) adopted by the autonomous Kurdistan region, Iraq is poised to raise its production to 3.4 million bpd this year and of that amount 2.6 million bpd can go to exports. That of course remains to take place.

Future forecast estimates Iraq’s production from 6 million bpd to 8 million bpd to 9 million bpd and even to 12 million bpd, figured out by the optimistic officials as a target to be achieved by the middle of next decade.

But the issue is more complex given the complicated Iraqi scene.
One of them is the relation between the central government in Baghdad and the regions led by Kurdistan. The constitution governing the country right now is quite ambiguous at this point of time.

That intended ambiguity was understood in different ways by both Baghdad and Irbil.
Baghdad became adamant threatening any company signing an oil deal with Irbil that it will be denied access to the more lucrative Iraq reserves.

Baghdad has a strong position to talk tough. It simply sits on 143 billion barrels of ‘proven’ reserves, while Kurdistan has only 40 billion barrels.

Baghdad is afraid that if it is to concede to Irbil, other regions can make use of the precedence in addition to the fact that regions don’t have enough technical and legal abilities that can enable them strike deals that protect the interests of the Iraqis.

But there is a host of problems ranging from legal structures of the proposed oil contracts to their fiscal outcome and, more importantly, security situation, all of which have contributed to undermining the ambitious program to increase Iraq’s oil production.

Big international oil companies used to play the Erbil card signing some agreements as a way to put pressure on Baghdad to come up with better draft contract proposals.

But that seems not to happen fast enough because of the blurred political climate and specifically as far as Iran is concerned.

One of the strategic ironies is that the US-led invasion of Iraq almost a decade ago ended up with Iran becoming the most influential player in the domestic politics, not the Americans. As a result, American oil companies do not enjoy an expected favorable position.

But aside from politics, and even if Iraq managed to increase its production and exports, in just two years Iraq should rejoin the OPEC quota system, which means putting a cap on its production. That is a headache OPEC usually tries to avoid.