23/01/26
Logistics not output to shape Iraq’s oil strategy
Somo hopes to turn the country's logistical constraints to its advantage when it
comes to Opec's quota negotiations, writes Bachar Halabi Dubai, 23 January
(Argus) — Second-largest Opec producer Iraq's state oil marketing company, Somo,
is quietly looking to recast its role in global oil markets, moving beyond its
traditional function as a crude seller towards a more strategic posture centred
on logistics, optionality and market access. Remarks by Somo director-general
Ali Nazar al-Shatari in a recent interview offer a detailed view of how Baghdad
is reassessing export routes and infrastructure priorities perhaps also meant to
impact its positioning within Opec+ over the coming years. At a headline level,
Iraq's oil narrative continues to revolve around vast reserves, constrained
infrastructure and persistent tensions between federal authorities and the
Kurdistan region. But beneath that surface, al-Shatari's comments point to a
strategy shift focused on controlling how, where and under what conditions Iraqi
oil reaches global markets. Somo estimates Iraq exported around 1.15bn bl of
crude last year, generating roughly $84bn in revenue. This compares with exports
of slightly more than 1.2bn bl/yr in 2023 and 2024, when higher oil prices
pushed up annual revenue closer to $95bn–100bn. Average exports from Iraq's
southern terminals stood at around 3.35mn–3.4mn b/d last year, alongside about
200,000 b/d of northbound flows through the Iraq–Turkey pipeline following its
partial restart in October . Somo is explicit that these volumes do not reflect
Iraq's underlying production or marketing capacity. "We can market any quantity
made available for export," al-Shatari said, arguing that the company's ability
to produce exportable crude far exceeds current flows. The binding constraint
lies in pipelines, storage and export infrastructure, rather than in demand or
sales capability, al-Shatari said. Framed this way, Baghdad would argue that
spare capacity exists, even if it is not immediately deployable. This comes
against a backdrop of Iraq having pushed — both privately and openly — for a
higher production baseline within the Opec+ alliance. The timing is significant,
given Opec+ is conducting its maximum sustainable production capacity assessment
this year, with a view to recalibrating quotas by late 2026. But unless those
logistical bottlenecks are actively resolved, they will also limit Iraq's
ability to argue for a higher production baseline under the MSC assessment.
Revenue reasoning For Iraq, the debate is not solely about capacity recognition.
Oil revenue is central to state finances and political stability, funding an
expansive public payroll and a state apparatus heavily reliant on salaries and
transfers to public servants. Baghdad is making the case that latent supply
growth is structural, anchored in upstream capacity, but constrained by
infrastructure rather than policy choice. Still, Somo's assertion of
near-unlimited marketing capacity warrants caution. Iraqi crude remains
structurally competitive but global oil demand growth began to slow last year
and is expected to moderate further in 2026. In Asia-Pacific, refinery
utilisation is increasingly shaped by margins, maintenance cycles and product
market conditions, limiting the region's ability to absorb additional crude
supply on a sustained basis. European appetite for Iraqi sour crude has
strengthened following the loss of Russian supply, but it too is finite. Freight
availability, insurance cover, sanctions compliance and refinery crude
compatibility continue to place practical limits on the market's ability to
absorb additional Iraqi output. These factors influence which buyers can take
more of Iraq's crude and at what cost. In that context, Somo's confidence
reflects less an assumption of unlimited demand than a calculation that improved
logistics and route flexibility will shape Iraq's effective export capacity.
Nowhere is this more evident than in Somo's renewed focus on Turkey's Ceyhan
terminal. The Iraq–Turkey pipeline's twin lines have a combined nameplate
capacity of about 1.4mn b/d, according to al-Shatari, yet only a fraction is
currently utilised. Somo says negotiations with Ankara on a revised framework
agreement are progressing positively, with draft texts being exchanged and both
sides aiming to reach an agreement later this year. Somo views Ceyhan as a
strategic outlet for Iraqi crude into Europe and the Americas, reducing reliance
on southern export infrastructure oriented primarily towards Asian buyers.
Operational challenges on the route are ongoing following a spat between Baghdad
and Turkey that left the pipeline shut down in March 2023-September 2025, but
all parties involved, including Turkey, share an interest in keeping exports
flowing. The arrangement's durability will depend on political continuity in
Baghdad, co-operation from the Kurdistan Regional Government and Ankara, and a
local geopolitical environment prone to sudden shifts. For Opec+, the deal
carries wider significance. By placing northern exports under a single federal
marketer, it clarifies Iraq's export volumes and reduces uncertainty over its
Opec compliance — long a source of friction within the group. Al-Shatari
outlined the firm's longer-term plans to route Basrah crude northwards and
separate storage at Ceyhan to handle multiple grades, increasing flexibility in
allocating supplies. The company's push to diversify export routes reflects not
only commercial logic but also recent experience. During the 12-day Israel-Iran
conflict last June, Iraq confronted the risk of disruption at the strait of
Hormuz, highlighting the vulnerability of relying on a single southern outlet.
In contrast, al-Shatari offered a blunt assessment of the long-planned
Basrah–Aqaba pipeline project , to ship crude from Iraq to Jordan's Aqaba port.
Al-Shatari acknowledged the project's political and crisis-response value but
questioned its economic rationale, noting that exports out of Aqaba would still
require transit through the Suez Canal or Egypt's Sumed system to reach Europe,
while offering limited advantages for Asia-Pacific buyers. Security risks in the
Red Sea further weaken the project's appeal, he said. The remarks are a clear
departure from former prime minister Mustafa al-Kadhimi's earlier official
backing of the line. The most forward-looking element of Somo's strategy lies in
offshore storage. Iraq has signed initial agreements with Oman to develop crude
storage at Duqm, with potential for expansion to Ras Markaz and Mina al-Fahl.
These Omani ports can accommodate very large and ultra large crude carriers,
offering scale and flexibility unavailable at Iraq's southern ports. Think
strait Storage outside the Mideast Gulf would reduce exposure to weather
disruptions and geopolitical risks around the strait of Hormuz , while also
placing crude closer to Asia-Pacific buyers. Al-Shatari confirmed Somo is in
talks with ExxonMobil on storage and trading options in Asia-Pacific, including
Singapore, China and India, such as leasing tanks, profit sharing and possible
joint ownership. These steps point to a gradual shift towards greater control
over timing, routing and destination. But despite diversification efforts,
Asia-Pacific remains Iraq's main destination and revenue source. While most
contracts are annual, some Asian buyers are tied into supply relationships
lasting 10-15 years. Pricing is uniform, with priority granted through volumes
and loading schedules rather than discounts. This means a large share of Iraqi
crude is committed, limiting short-term flexibility. Taken together, these
elements explain how Iraq may navigate its oil policy and Opec+ politics in the
years ahead. By stressing logistical limits, Baghdad can argue it holds spare
production capacity without lifting crude exports, while expanded routes and
storage improve resilience. Whether this flexibility remains dormant or becomes
market-moving will depend on Iraq. Iraq’s crude pipeline hopes Send comments and
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