Iraq US$53bn energy deal with Exxon Mobil Corporation and PetroChina will strengthen the government’s fiscal status, Moody’s Investors Service new report revealed
According to Iraqi officials, the deal will raise production at the southern oil fields of Nahr Bin Umar and Ar-Ratawi to 500,000 bpd from around 125,000 bpd now and will generate US$400bn in additional revenue for the government over a 30-year time horizon.
Moody’s stated in its latest report that it expects the deal to support economic growth and government finances, and to support the country's external position.
The risk analysis firm estimates that when the extra oil production is fully online, it will add about four per cent of GDP annually to government revenue and export receipts, strengthening the foreign-exchange reserves position of the country. The project will also boost non-oil growth and employment during the construction phase.
As part of the deal, ExxonMobil and PetroChina will also build new storage tanks, pumps, pipelines and offshore terminals that will simultaneously increase Iraq’s oil export capacity, which is currently limited to around 3.8mn bpd and a major constraint on the country’s ability to increase production.
The companies also plan to capture and process 100 mmcfd, a 10 per cent increase over the current production level and a step toward the government’s target of three bcfed by 2022.
In an environment of moderate oil prices, averaging US$60-US$65 per bbl over the next two years, the firm expects Iraq’s fiscal balance to return to deficit in 2019 and 2020 and government debt to increase again to around 55 per cent of GDP in 2020 from 51.5 per cent in 2018.
Iraq has the world’s fifth-largest stock of oil reserves with its hydrocarbon resources concentrated in the southern Basra province and in the north of the country near Kirkuk and Mosul. However, underinvestment and infrastructure constraints following decades of armed conflict and security challenges have left a significant portion of the country’s hydrocarbon potential unexploited.
Large fiscal and current-account imbalances since the onset of the oil price decline in mid-2014 and the costly military conflict with the Islamic State nearly doubled Iraq’s government debt burden to 66 per cent of GDP by year-end 2016, from 32 per cent in 2013.
The foreign-exchange reserves nearly halved to US$42bn from US$74bn. The higher oil prices since mid-2017 subsequently led to improved finances and Moody’s estimated that the government posted a budget surplus of around 6.5 per cent of GDP in 2018.
Moody’s report added that in an environment of moderate oil prices, averaging US$60-US$65 per bbl over the next two years, the firm expects Iraq’s fiscal balance to return to deficit in 2019 and 2020, and government debt to increase again to around 55 per cent of GDP in 2020 from 51.5 per cent in 2018.
Beyond 2020, Moody’s estimated the signed deal could accelerate Iraq’s oil production, pushing the budget and the current account closer to balance, even in a moderate oil price environment.
