Iraq and Iran From a Crude Perspective

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If there is one area where Iraq is taking advantage of Iran’s diminishing influence, it is in the oil market. Tehran’s influence in Iraq is multifaceted and the relationship between the two neighbors is deep and complex. In the oil market, however, things are different for these two OPEC rivals.

Iraq took advantage of the market void that opened up when Washington ended waivers on Iranian oil sanctions in May. Since then, we have seen more Iraqi oil flow to former Iranian customers such as India and Turkey. Even in China, which continues to defy US sanctions by positioning itself as Iran’s top oil customer, imports of Iraqi crude early this summer were the highest in our records.

India, once Iran’s second-largest oil importer, saw imports of Iranian crude oil drop to their lowest level in May, when Washington reinstated sanctions on Tehran. By May, Indian imports of Iraqi crude had reached 1.15 million barrels per day, which at the time was the highest level since January 2018. Last month, Indian offtake of Iraqi crude climbed even higher. The majority of these imports went to the Indian Oil-operated Paradip refinery and the Reliance-operated Jamnagar refinery.

As Iraqi exports to India hit a record high in August, its exports to the United States dropped to 220,000 bpd. Crude exports during the first eight months of this year have halved  compared to the same period last year. This is likely a response to Iraq seeking to take advantage of demand growth in Asia, as well as the fact that the US is becoming less reliant on waterborne imports. 

From India to China, Iraqi crude flows to Chinese refineries reached 1.15mn bpd in July, the highest we have seen in our data since 2013. 

During an August 25 meeting with Chinese Ambassador to Iraq Zhang Tao, Iraqi Foreign Minister Mohammed al-Hakim hailed China as an “important strategic partner to Iraq,” while highlighting the need for increased Chinese investments across the Iraqi energy sector. Chinese companies PowerChina and Norinco International have secured a contract to build a refinery at the Iraqi port of Fao on the Persian Gulf. 

Turkey has also seen its dependence on Iranian oil wane since the United States reinstated sanctions. In May, as Ankara was protesting the US decision to revoke waivers, it was already leaning on other oil suppliers. Turkish offtake of Iraqi crude nearly doubled from April to 220,000 bpd in May, to the highest level since mid-2018.

The flow of Iraqi crude not only indicates that it is targeting Iran’s market share, but that it is also pivoting further towards Asia, focusing on the region where there is the most upside – for both oil demand growth and investment.