OPINION: Opec’s second-largest producer Iraq is ill prepared to withstand a prolonged oil price war following the collapse of the Opec+ alliance.

The country is gripped by social unrest and a political vacuum arising from a failure to form a Cabinet to appease protesters demanding the dismantling of a ruling class they see as deeply corrupt and incapable of providing jobs and basic services.

Prime Minister-designate Mohammed Allawi withdrew his candidacy for the post on 1 March, accusing political parties of obstructing him.

A day later, caretaker Prime Minister Adel Abdul Mahdi deepened the power vacuum by deciding to withdraw from most of his duties.

Unlike Saudi Arabia, which has a war chest of more than $500 million it can rely on to weather a long period of austerity in the event of a drawn-out price war, Iraq’s finances are severely stretched.

International oil companies have turned Iraq into Opec’s second-largest producer and exporter in the past decade thanks to their involvement in expanding production from giant fields of the Basra region in the country's south.

However, major upstream projects are on hold amid the on-going political turmoil, which has at times disrupted operations at oilfields and refineries.

Iraq is currently pumping around 4.5 million barrels per day, making it second only to Opec kingpin Saudi Arabia in terms of output in the producer group.

The political paralysis and the collapse of the oil price mean that a long-delayed seawater injection project aimed at expanding and sustaining output from the giant fields in Basra — such as BP-operated Rumaila — will not happen any time soon.

Plus if Iraqi finances are further strained as a result of a price war, the authorities may not prioritise payments to the international oil companies — which would in turn curb vital investment.

The scenario may explain the near panic in the Iraqi Oil Ministry that is trying to mend fences between Russia and Saudi Arabia.

“The (oil) ministry is in contact with members inside and outside Opec to discuss ways to prevent deterioration in oil prices,” Iraqi Oil Minister Thamir Ghadhban said.

Iraq believes that a price war to acquire a larger market share does not serve producing countries.

Oil Ministry spokesman Assem Jihad said: "It is not wise for Iraq to pump more oil into the global markets, which already are witnessing a surplus, because pumping more oil will lead to further price crashes.

"The oil price crash will hit all producing countries, including Iraq, and it will also hit the global economy that will suffer from a dearth of investments.

"All countries should specify their production levels to soak up the supply glut in global markets and reinstate the balance between supply and demand, which will lead to higher oil prices," Jihad added.

(This is an Upstream opinion article.)