Nigeria and Libya could be forced to share OPEC output cuts as Saudi placates Iraq

A Saudi bid to shore up Iraqi support for a nine-month extension of an OPEC output deal could see Nigeria and Libya forced to share the burden of cuts. The two countries are currently exempt from self-imposed cuts agreed by the oil cartel as they restore capacity following domestic conflicts.

Following a meeting with his Saudi counterpart at a joint press conference in Baghdad on Monday, the Iraqi oil minister Jabar Ali al-Luaibi indicated that Iraq would be willing to join with Saudi Arabia and Russia in proposing a nine-month extension to cuts already agreed by the Organisation of Petroleum Exporting Countries.

OPEC will meet in Vienna on Thursday to agree whether the deal reached in December to cut production by 1.8 million by the first half of 2017 will be extended in a bid to raise the oil price. Saudi Arabia and Russia (a non-OPEC member) propose extending cuts until March 2018, whereas Iraq had until Monday advocated only a six-month extension.

The meeting with the Saudi energy minister Khalid al-Falih comes nearly three decades since a senior Saudi energy official visited the Iraqi capital. The two states are OPEC’s two largest oil producers.

Iraq-Iran tensions

The relationship between Iraq and Iran had been the main stumbling block to reaching a consensus on cuts back in December 2016.

Both states had been reluctant to take cuts at the end of 2016, with Iraq arguing it was recovering from years of stagnation and Iran saying it needed to raise output following the lifting of Western sanctions.

Ultimately Iran was allowed to raise production across the six-month period, whereas Iraq agreed to cap its output.

African implications 

Mr Luaibi hinted that Nigeria and Libya may no longer enjoy the exemptions from output cuts as the December 2016 allowed.

The Iraqi oil minister said on Monday that the current production cut of 1.8 million barrels per day may be increased and that “small oil producing countries” excused from the previous round of cuts may have to participation in a new deal.

As Nigeria was recovering from attacks which had seen its output drop by over a third in 2016 due to militant attacks, it avoided any output-cap. War-torn Libya were also exempt.

Both countries have seen production rise since the start of 2017.

The Iraqi comments come as Goldman Sachs said that rising production from the two African countries cold offset the benefits caused by cutbacks by other OPEC and non-OPEC countries.

Nigeria over a barrel

A cut in oil production would be massive fiscal blow to Nigeria, whose 2017 budget was benchmarked against peak oil output of 2.2 million barrels per day. Nigerian oil minister Ibe Kachikwu had recently said that Nigeria would seek an extension of its exemption from cuts for another six months as part of the OPEC deal.

Inside Nigeria, the sector is seen as being mid-recovery, following progress in the clamping down on militant attacks. Vandalism in Nigeria caused the repeated shutdown of the Shell-owned Forcados pipeline repeatedly throughout 2016, and caused the Chevron off-shore facility to suspend activity in May 2016.