By: Shatha Kalel
Oil prices have been on the rise this week, marking a potential second consecutive weekly gain, driven by a combination of geopolitical factors and production control strategies. The most significant developments include new U.S. sanctions on Iran and an OPEC+ plan aimed at curbing overproduction from its member countries. These events are contributing to expectations of tighter oil supplies, which in turn are boosting the price of crude oil.
Oil Prices Surge on Sanctions and Production Cuts
In early Asian trading on Friday, oil prices saw a notable uptick. Brent crude futures rose by 42 cents, or 0.6%, reaching $72.40 per barrel, while U.S. West Texas Intermediate (WTI) crude futures increased by 45 cents, or 0.6%, to $68.52 per barrel. The rise reflects a growing belief that global oil supply constraints are on the horizon.
For the week, both major crude benchmarks are poised to close with gains of approximately 2%, marking their largest weekly increase since the first week of 2025. This momentum is primarily attributed to two key factors:
U.S. Sanctions on Iran: The recent sanctions imposed by the U.S. on Iran have escalated tensions in the global oil market. Iran, a significant oil producer, has faced restrictions on its oil exports, limiting its ability to freely engage in the global supply chain. This reduction in potential supply has heightened concerns over global oil shortages, driving up prices.
OPEC+ Production Cuts: The Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, have announced plans to reduce oil production among seven of its members. The production cuts are intended to combat the threat of overproduction in the global market, which could otherwise lead to a glut of oil and a subsequent price drop. By managing production levels, OPEC+ seeks to stabilize oil prices and maintain their market influence.
Impact on Iraq’s Oil Market
For Iraq, one of OPEC’s largest producers, these changes in the global oil landscape carry significant implications. As a member of OPEC, Iraq is bound by the group’s production policies, including the recent OPEC+ decision to reduce output. While Iraq has historically been one of the countries that has sometimes exceeded its production targets, the new cuts are likely to force adjustments in the country’s oil output.
Iraq’s Oil Production and Revenue
Iraq’s oil sector is central to its economy, with oil exports accounting for the bulk of the country’s revenue. The impact of these global production cuts and price increases can be both positive and challenging for Iraq:
Positive Revenue Impact: Higher oil prices, driven by the OPEC+ cuts and the Iran sanctions, could provide Iraq with an opportunity for increased revenue from oil exports. The government may benefit from higher revenues due to the rise in prices, which could be used for development projects or to stabilize the national budget. If Iraq maintains its production levels within OPEC’s mandated limits, it could secure a stable flow of income from oil exports.
Pressure on Production Levels: Iraq’s oil production is at the core of the OPEC+ deal, but any attempt to scale back production could affect the country’s oil export levels. With Iraq’s reliance on oil exports, reducing output could limit the government’s immediate income potential, especially if it results in long-term production cuts. The country must balance between adhering to OPEC+ agreements and ensuring it meets its domestic economic needs.
Investment and Infrastructure Development: Higher oil prices and potential revenue increases could encourage further investment in Iraq’s oil infrastructure. However, with geopolitical risks and an unpredictable security environment, Iraq may struggle to attract sustained foreign investment into its oil sector. The government would need to create policies that foster stability and confidence in order to secure investments.
OPEC+ and the Global Oil Price Outlook
As OPEC+ continues to adjust its production levels, the global oil market remains in flux. With major players like Saudi Arabia, Russia, and Iraq contributing to these collective cuts, OPEC+ is attempting to strike a balance between supporting oil prices and satisfying its members’ economic needs. These efforts to limit production are expected to maintain pressure on oil prices, particularly if geopolitical tensions, like those involving Iran, continue to restrict supply.
Global oil prices, while benefiting from these moves, could face challenges in the longer term due to factors such as global economic slowdowns, changes in energy consumption patterns, and the shift towards renewable energy sources. In the short to medium term, however, oil prices are likely to remain elevated, benefiting oil-producing countries like Iraq but also posing challenges for consumers.
Conclusion
The combination of U.S. sanctions on Iran and OPEC+’s production cuts are playing a crucial role in pushing oil prices higher, with Brent crude reaching $72.40 per barrel and WTI touching $68.52 per barrel. These developments are contributing to a more stable and potentially profitable environment for oil producers. For Iraq, while higher oil prices could bring economic benefits, the challenge will lie in adhering to OPEC+ production targets while maintaining the country’s vital oil export revenues. The global oil market remains complex, and these price fluctuations have significant implications not only for Iraq but for global economies and energy security
Economic Unit/North America Office
Al Rawabet Center for Research and Strategic Studies