Iraq, the world's third-largest oil exporter, is sinking its economy as a result of the coronavirus pandemic, which has hurt global demand for energy and caused prices to collapse. According to Boomberg, the country faces a serious crisis, where it is not possible to pay even teachers and civil servants on time.
Meanwhile, OPEC is trying to boost a fragile market by holding supply and needs major producers like Iraq to hold the line. For Iraq, restricting supply carries enormous economic and political cost. But breaking the deal is also risky, as it can mean lower prices for everyone.
So if Iraq, the commodity's major producer, disrespects the pact, it would be difficult to prevent smaller partners from doing the same. That is, the agreement signed in April by the country and other members of OPEC+, which brings together the Organization of Petroleum Exporting Countries and nations such as Russia, may be under threat.
"It will be increasingly difficult for OPEC+ to maintain discipline as countries, especially Iraq, become more desperate," said Tarek Fadlallah, ceo of Nomura Asset Management's Middle East unit. The country's capital, Baghdad, has already had to reduce daily production by about 1 million barrels – worth about $40 million – to 3.6 million.