IRAQ- A NEW DAWN

MENA OIL RESEARCH – JULY 2021

Date of issue: 01/07/21

 IRAQ: OVERVIEW 2

Table of Contents

Executive Summary ........................................................................................................................................................................3

Economic & Geopolitical Overview .................................................................................................................................................4
GDP / Oil & Gas Revenue ...........................................................................................................................................................4
Geopolitical overview ..................................................................................................................................................................6
Iraqi Federal Government (IFG) and the Kurdish Regional Government (KRG) ......................................................................6
COVID-19 situation in the country ...............................................................................................................................................7
Economic projections-Sentiment .................................................................................................................................................8
Oil Market Overview .......................................................................................................................................................................9
Upstream.....................................................................................................................................................................................9
Oil fields and infrastructure ......................................................................................................................................................9
Hydrocarbon exploration licensing rounds ............................................................................................................................. 10
Shifting emphasis on gas....................................................................................................................................................... 10
Oil production ........................................................................................................................................................................ 10
Midstream ................................................................................................................................................................................. 11
Crude oil exports from Iraq .................................................................................................................................................... 11
Destination of crude oil exports ............................................................................................................................................. 11
Grades ................................................................................................................................................................................... 13
Return of Iran and likely impact on Iraqi exports.................................................................................................................... 16
Downstream .............................................................................................................................................................................. 17
Refineries in Iraq: .................................................................................................................................................................. 17
Refinery Upgradation/Expansion plans:................................................................................................................................. 19
Pipeline: .................................................................................................................................................................................... 20
Refined Products trade flows ........................................................................................................................................................ 21
Imports of clean refined products .............................................................................................................................................. 21
Key Suppliers ........................................................................................................................................................................ 22
Exports of refined products ....................................................................................................................................................... 22
Iraq Fuel Oil Market Fundamentals............................................................................................................................................... 23
Clearing the overhang ............................................................................................................................................................... 25
Fuel Oil Exports......................................................................................................................................................................... 25
Domestic consumption - Power ................................................................................................................................................. 26
Difficulty in identifying the origin of Fuel oil (Iran vs Iraq) .......................................................................................................... 27
SOMO recent announcements – For legal FO storage tankers ................................................................................................ 27

Date of issue: 01/07/2021

 IRAQ: OVERVIEW 3

Executive Summary
 Iraq is highly reliant on oil revenues to meet state budgets. Oil contributed 92% of overall revenue in 2019
and accounts for nearly 97% of the state budget.
 The country holds the 5th largest oil reserves in the world at 145 billion bbl, ~8.4% of global reserves.
However, lack of investments and prolonged periods of wars and conflicts have resulted in production not
ramping up to desired levels.
 2nd wave of covid-19 peaked in Apr 2021 but has resulted in high demand on the country’s fragile health
sector. Mobility has started picking up as lockdowns relax. Forward looking sentiment data also suggests
that as oil prices pick up, optimism on economic recovery is increasing.
 The southern part of the country houses more than five supergiant oil fields (>5 billion bbl reserves) and
holds immense potential. While IOCs have been a part of the development, especially since 2009, the exit
of Shell and decision of ExxonMobil to also sell stake in West Qurna development is likely to add pressure
on the NOC to find alternatives for CAPEX spend. With international majors reducing CAPEX outlay and
increasing their focus on renewables/transition fuels and other NOCs looking to monetize assets, Iraq’s
upstream policy could undergo an overhaul.
 Asia is the top destination of Iraqi crude oil exports with China and India topping the buyers list. The
introduction of the new Basrah Medium grade has found good demand in the market and has helped protect
the value of Basrah Light grade. Chinese buyers with access to other heavy sour grades seem to prefer
Basrah Light crude, while Indian and South Korean refiners look to take more Basrah Heavy to meet their
requirements.
 The return of Iranian oil subject to removal of sanctions will create intense competition for Iraqi exports and
can likely result in market share erosion in key demand centers. Price incentives/new markets push can be
two alternate ways to protect exports.
 Refining sector in Iraq has been neglected due to lack of investments and years of conflict. Existing refineries
are also mostly simple hydro-skimming configuration which yields more fuel oil and less of transport fuels.
This has resulted in dependence on imported fuel. There are a few projects planned to overhaul this sector.
 Gasoline followed by Gasoil are the primary products of import while Naphtha and Fuel Oil are the major
exported products.
 Electricity sector in Iraq is highly dependent on hydrocarbons with gas plants accounting for nearly 90% of
the oil & gas fired plant capacity. Oil fired plants use a mixture of fuel oil and direct crude burn to meet the
fuel requirement. Iraq has high dependence on Iran for electricity and gas supply and looks to increase
energy security. Recent announcements by Saudi Arabia to support gas exploration in Iraq could help.
 Iraqi Straight Run Fuel Oil (SRFO) is less suited for bunkering and power generation and is mostly taken by
complex refineries as an alternate feedstock, replacing crude oil. Target markets are deep conversion
refiners in Asia.

Date of issue: 01/07/2021

 IRAQ: OVERVIEW 4

Economic & Geopolitical Overview

GDP / Oil & Gas Revenue

The economic outlook of Iraq has taken a heavy toll due to the impact on both the oil and the non-oil sector which has been
impacted by massive contractions on the back of COVID-19. Several factors have contributed to the economic downgrade such
as – sustained lockdowns, OPEC+ cuts on oil production, cuts by the Govt of Iraq on discretionary spending and public
investments and a massive devaluation of the Iraqi Dinar (IQD) against the US Dollar by 18.5%.

According to World Bank estimates, the GDP for 2020 dropped by 10.9%, the largest annual drop since 2003, which was on the
back of the US led invasion of Iraq. According to estimates, the GDP growth for Iraq is expected to rise by 1.1% in 2021 with a
further increase of about 5% for the following three years.

Iraq GDP (Current USD) Iraq GDP Growth (Annual %)

250 20
15
200
10
Billions

150 5
0
100
-5
50 -10
0 -15

2021*

2023*

2025*
2005

2007

2009

2011

2013

2015

2017

2019
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019

Source: World Bank

Iraq’s economy is still quite heavily reliant on oil

revenues, which have taken a toll with the recent
OPEC+ cuts. According to World Bank estimates, this
has caused a 17.6% contraction in the Oil GDP, while
the non-oil economy had a 9% contraction due to
COVID-19 impacting domestic demand and the services
sector. Oil revenues accounted for 92% of the total
revenue in 2019, which dropped by over 45.1% in 2020.
Refinitiv Oil Research oil tracking data shows the oil
exports for 2020 had a 11.6% drop due to the OPEC+
agreement. This followed by the crash in global
benchmark prices resulted in oil revenue for Iraq being
estimated at just $41.95 billion, the lowest annual
revenue in more than a decade.

Oil revenue for Q1 2021 are estimated at $15.53 billion,

an increase of 40% from Q4 2020 levels. According to a
Reuters report, the revenues for Q2 have been reported
at $5.5 billion for April and $5.9 billion in May.

Source: Iraq Oil Report

Date of issue: 01/07/2021

 IRAQ: OVERVIEW 5

According to the latest BP Statistical review, Iraq holds the fifth largest oil reserve at 145 billion barrels accounting for 8.4% of the
global reserves. However, the country ranks third in the Reserves to Production (R/P) ratio, only after Venezuela and Iran, which
determines the length of time that the reserves would last, based on the production levels for the assessment year. This makes
the country a prime target for International Oil Companies (IOC’s) to invest despite the political turmoil that it has been through in
the past decade.

000 million bbl 000 million MT Share of Total R/P ratio

Venezuela 303.8 48 17.50% >500
Saudi Arabia 297.6 40.9 17.20% 68.9
Canada 169.7 27.3 9.80% 82.3
Iran 155.6 21.4 9.00% 120.6
Iraq 145 19.6 8.40% 83.1
OPEC 1214.7 171.8 70.10% 93.6
Global 1733.9 244.6 100.00% 49.9
Source: BP Statistical Review – 2020

The IOC’s investments in Iraq were closely tied to the benchmark prices and OPEC decisions, as the output drove revenue for
Iraq to fulfil their commitments to the contracts. The drop-in prices invariably resulted in late payments and the Ministry of Oil
reducing their field development budgets. According to the report from OIES, the demands from IOC’s to reduce their capital
spending resulted in upstream investments dropping from $21 billion in 2014 to $11 billion in 2016. Increasing outstanding
payments for the IOC’s resulted in increased payment nominations via crude. This drop-in investment also resulted in the drop in
active rigs. While the rig count was recovering gradually post 2016, the COVID-19 crisis resulted in a massive drop of 65%, before
starting to crawl gradually from December 2020.

Source: Baker Hughes / Refinitiv Eikon

Date of issue: 01/07/2021

 IRAQ: OVERVIEW 6

Geopolitical overview

Source: News Reports / Refinitiv Eikon

Iraqi Federal Government (IFG) and the Kurdish Regional Government (KRG)
The relationship between Baghdad and the KRG has been a point of contention, with the constitution of Iraq stating some of the
understanding that have been arrived between the two. Article 111 of the constitution states that “Oil and Gas are owned by all
the people of Iraq in all the regions and governorates”. Article 111 has been interpreted differently by the IFG and the KRG. The
Iraqi central government argues that the Article vests the oil & gas ownership in the central government as a representative of all
Iraqi people, including the KRG, while the KRG argues that the Article does not deny them the ownership rights over oil and gas

Source: BBC News/USAID – Areas under referendum were cancelled at the end of 2017

within their territories. With the KRG being recognized as an autonomous federal entity by Iraq and the United Nations, the claim
is that the regional government would represent the people within its territories. The oil & gas ownership is directly relevant to the
management of oil & gas operations, which would give them the rights for exploitation, exploration, drilling, development,
production, exporting and signing contracts with the IOC’s. More detailed ownership particulars are available in the research paper
submitted by B.Kadirgolam to the Robert Gordon University1.
While both the US and Turkey have had an impact on the growth of KRG, neither of them supports their independence. The oil
reserves under KRG account for 30% of Iraq’s proven reserves, with another 25 billion barrels of potential reserves. They also
have an export capacity of 100,000 bpd and receive 17% of all oil revenues.

1
https://rgu-repository.worktribe.com/output/950954/an-investigation-into-the-oil-and-gas-contractual-and-legal-relationship-between-the-kurdistan-
regional-government-krg-and-the-iraq-federal-government-ifg

Date of issue: 01/07/2021

 IRAQ: OVERVIEW 7

COVID-19 situation in the country

Source: Reuters / Refinitiv Eikon Covid-19 Macro Vitals app

New COVID-19 cases in Iraq for 2020 peaked around August and active cases stabilised in Q4 2020 before dropping significantly
by the end of the year. However, relaxations in movement and lifting of lockdowns, resulted in a more virulent spread in the 2nd
wave with active cases rising rapidly and peaking in Apr 2021 before starting to drop from the peak. The current levels of active
cases are still higher than those seen in the first wave. Aggregated mobility data across different days of the week and split into
Residential areas and Commercial/Retail areas also confirms the impact of lockdowns, though there are periods where lockdowns
do not appear to have been very effective. This is expected to have caused the spike in cases despite the lockdown measures.

Source: Google Covid-19 mobility dataset / Refinitiv Oil Research

Date of issue: 01/07/2021

 IRAQ: OVERVIEW 8

Economic projections-Sentiment

Sentiment data gleaned from news and social media articles regarding Iraq’s economic outlook via the Thomson Reuters Market
Psych (TRMI) indices show that the economy and sentiment surrounding the same tend to mirror oil prices. This comes as no
surprise considering the high percentage of contribution of the sector to the national economy. Reuters reported in September
that as much as 97% of the country’s budget is contributed by the sector. As prices increased with support from OPEC+ cuts and
gradually reducing lockdowns post the 1st wave of COVID-19 globally, the short-term moving average of economic growth
sentiment picked up and cut above the longer-term average, signalling bullishness. The announcement of vaccines gave the
much-needed push after prices stabilised. 2nd wave COVID-19 in several demand centres and resurgence in cases domestically
in Iraq led to the sentiment falling again early this year. Currently with prices having tested multiyear highs, demand outlook
improving, the sentiment has turned out to be bullish again. A similar pattern can be observed using the optimism and fear indices
with rising optimism and falling fear sentiment.

Source: Refinitiv Eikon/MarketPsych/Thomson Reuters Market Psych Indices (TRMI)

Date of issue: 01/07/2021

 IRAQ: OVERVIEW 9

Oil Market Overview

Upstream

Oil fields and infrastructure

For all areas except those falling under the KRG, oil and gas E&P falls under the purview of the Ministry of Oil, Baghdad. In
Kurdistan, the KRG’s Ministry of Natural Resources is responsible for oversight.

There are more than five supergiant fields (5+ billion bbl in reserves) in the southern part of Iraq, with the Rumaila field being the
largest contributor to production. BP is the operator in the field with Basra Oil Company, PetroChina and SOMO being the other
stakeholders. In late 2020, BP was in discussion with the Ministry of Oil regarding the plateau production of the field considering
revised dynamics for Iraq as part of OPEC and BP’s internal shift to reduce CAPEX on hydrocarbons.

The Zubair oil field in the south are operated by ENI in partnership with Kogas and Basra Oil Company.

In the West Qurna 1 development, Exxon currently remains the lead partner but has expressed willingness to exit the operations
and Iraq has made a bid for the stake through the Basrah Oil Company as per reports in May 2021. The other major partners are
PetroChina, Itochu Corporation and Pertamina. The West Qurna 2 development is currently operated by Lukoil with a 75% interest
and the balance in partnership with the South Oil Company. Reuters reported at the end of May 2021, quoting a statement by
Lukoil that test operations were underway to increase the production in the development.

Source: IMF/esplift.com

Date of issue: 01/07/2021

 IRAQ: OVERVIEW 10

The Majnoon oil field was originally operated by Shell, but the IOC relinquished its interest in 2017 following which the development
was taken over by the state, taking the support of different oil field service providers. In Apr 2021, the government approved a
$1.15 billion budget for investment in the Majnoon field to increase the production from the current 130,000 bpd to 450,000 bpd
over the course of 3 years. In the Halfaya oil field, PetroChina is the operator with Total Energies having a 22.5% stake. Drilling
is likely to resume in the field after the pandemic had resulted in operational challenges.

While contracts for the supergiant fields are in place, to ramp up production and keep a constant pipeline of reserves, significant
capital investments are required. With the gradual exit of a few oil majors and shifting focus of others, there is a significant task
ahead of the Iraqi government to attract investments at a time when other NOCs in the region are also likely to look at monetizing
their assets.

Hydrocarbon exploration licensing rounds

1. Under the first licensing round, Technical Service Contracts were awarded where the operators are compensated for the
costs incurred during exploration, development and production at an agreed level depending on a pre-determined set of
performance indicators
2. In the second licensing round, development production service contracts were awarded.
3. The third licensing round was focussed on gas with 3 fields put on tender.
4. The fourth round included 12 development areas and introduced exploration contracts compared to the service contracts
offered in earlier rounds.
5. A fifth licensing round was held in 2018 and opened blocks bordering Kuwait and Iran, including an offshore block for
bidding.

Shifting emphasis on gas

Iraq has tried to shift exploration and production focus to gas to increase domestic production and move towards energy
independence. Gas is needed for power generation and industrial uses and could displace the high value oil from domestic
consumption, thereby freeing up for oil exports. It would also allow Iraq to reduce dependence on Iran for gas supply.

Saudi Arabia and Iraq agreed to establish a joint fund, with an estimated capital of $3 billion, as a contribution from the kingdom
in promoting investment in Iraq’s economy, as reported by Reuters. Companies such as Sabic and Saudi Aramco have lately
shown interest in investing in Iraq, particularly developing the Akkaz and Ratawi gas fields and Nebras petrochemical project. If
the investment goes through this would be a big boost to Iraq’s National Investment Commission’s plans.

UAE has also committed to invest $3 billion in Iraq to solidify economic partnership between the two countries aimed at socio-
economic development. The two countries also agreed on energy cooperation especially in clean energy.

Oil production

Source: US EIA, International Energy Statistics

Iraq’s oil production potential has not been utilized for a long time considering the geopolitical conflicts that have existed since
1990s. The Gulf War drastically cut production in Iraq from above 2.0 million bpd to below 0.5 million bpd. The country took a
while to recover and increase production beyond 1990 levels before the US war on Iraq brought down the production yet again.

Date of issue: 01/07/2021

 IRAQ: OVERVIEW 11

Since then production has been gradually increasing barring periods of armed conflicts and terrorism within the country that led
to some infrastructure damages.

From 2017 till Apr 2020 Iraq produced nearly 4.5 million bpd of crude oil but post the OPEC+ agreement that was set in place
after the pandemic destructed global demand, production has dropped to below 4 million bpd and averaged 3.87 million bpd.
While OPEC+ as a group has achieved good compliance with agreed targets, Iraq has been one of the major producers with a
poor compliance record to agreed cuts from the beginning. The country overproduced in the months of May and Jun 2020 and
promised in the July meeting to achieve 100% compliance by August and account for the overproduction through deeper cuts in
Jul-Sep 2020 production. The compliance has improved since, barring a couple of months of overproduction. The economic
situation in the country, difficulty in reaching an agreement with other stakeholders including IOCs and the KRG government are
expected to have contributed for the overproduction.

Midstream

Crude oil exports from Iraq

Iraq Crude Oil Production And Exports

5000 100.0%
4500 90.0%
4000 80.0%
3500 70.0%
3000 60.0%
kbpd

2500 50.0%

%
2000 40.0%
1500 30.0%
1000 20.0%
500 10.0%
0 0.0%
Mar-17
May-17
Jul-17

Mar-18
May-18
Jul-18

Mar-19
May-19
Jul-19

Mar-20
May-20
Jul-20

Mar-21
May-21
Sep-17

Sep-18

Sep-19

Sep-20
Nov-17

Nov-18

Nov-19

Nov-20
Jan-17

Jan-18

Jan-19

Jan-20

Jan-21
Production Exports Exports % of production

Source: Reuters OPEC survey/Refinitiv Oil Research

Iraq is a key exporter of crude oil in the OPEC group and exports on an average 80% of the total production. The country is the
second largest producer and exporter in the group. Exports since 2017 have averaged around 3.53 million bpd but have dropped
below the average in 2020 and 2021 as the OPEC+ cuts came into effect. YTD exports have averaged around 3.13 million bpd.

Destination of crude oil exports

Asia Pacific refiners, especially the top 4 (China, India, Japan and South Korea) have been the largest importers of Iraqi crude oil
consistently over the years. The medium/heavy sour grades exported by Iraq are a good fit for the deep conversion refineries in
these countries and over the years the sanctions on Iran and Venezuela have reduced availability of necessary feedstock for
these refiners. Following APAC, refiners in the Med are the next key buyers of Iraqi crude. The complex refiners in the region, like
their Asian counterparts have increased sourcing from Iraq to make up for the lost volumes from other producers. Exports to North
America follow next but the exports have dropped over the years. NWE refiners are the fourth largest target market for Iraqi
exports.

India and China are the two largest buyers of crude oil exported from Iraq with China being the dominant buyer in 2019 and 2020
but marginally dropping behind India in 2021 year till date. Indian imports dropped in 2020 as the pandemic forced a reduction in
demand but demand for Iraqi oil picked up in 2021 and has till date surpassed the numbers observed for 2019. Having lost access
to the ultra-heavy and sour grades from producers affected by sanctions, Indian refiners, especially in the private sector have had
to rely on similar grades from Iraq, Canada, and Mexico to make up for the shortfall. Increased coking capacity through refinery
expansions have also resulted in increased demand from state owned refiners. South Korea has been a key market and the
country was the third largest importer in 2019 and 2020 but dropped to the 5th spot in 2021 with volumes dropping in 2020 and
2021. Greece, Italy, and Spain constitute the major chunk of buying from the Mediterranean refiners.

Date of issue: 01/07/2021

 IRAQ: OVERVIEW 12

Source: Refinitiv Oil Research

Date of issue: 01/07/2021

 IRAQ: OVERVIEW 13

Top 10 destinations of Iraqi crude oil exports (kbpd)

2019 2020 2021

China 1019.1 China 1152.8 India 970.9

India 947.3 India 881.9 China 946.9

South Korea 308.1 South Korea 228.3 Greece 181.1

United States 299.2 Italy 204.7 Italy 170.1

Italy 236.2 Greece 156.5 South Korea 168.7

Greece 173.7 United States 129.6 United 146.4

States

Netherlands 138.5 Turkey 107.2 Turkey 136.5

Turkey 126.1 Spain 63.5 Egypt 68.6

Spain 83.6 Egypt 60.0 Croatia 57.0

Egypt 65.9 Netherlands 48.8 Spain 52.2

Source: Refinitiv Oil Research

Grades
The flagship Basrah grades produced in Iraq are exported via the southern oil terminals while the Kirkuk grade and other grades
produced in the KRG are exported via Ceyhan, Turkey after being shipped across pipelines or trucks. The ultra-heavy Qayyarah
grade of crude oil was exported for a brief period from the southern port of Umm Qasr after being trucked from the oil fields.

The flagship Basrah grade was split in 2015 to introduce the Basrah Heavy grade to address issues surrounding quality while
allowing Iraq’s State Oil Marketing Organization (SOMO) to maximize the value from Basrah Light. Prior to this split, quality issues
had led to issues in exports. Initially the grades were meant to possess an API gravity of around 34 and 26 but with recent field
additions that have added heavier quality streams, the API of exports have been lower. This prompted SOMO to further split the
offering as 3 grades, introducing the Basrah Medium grade which was announced in Nov 2020 and launched in Jan 2021.

Source: Refinitiv Oil Research

Date of issue: 01/07/2021

 IRAQ: OVERVIEW 14

With respect to preferred grades of purchases, Chinese refiners with access to alternate heavy sour grades have preferred to
take more of Basrah Light and the newly launched Basrah Medium grades as opposed to Basrah Heavy. News reports and
Refinitiv Oil Research oil trade flow data suggests that Iranian and Venezuelan oil have continued to find their way into China and
considering that those crudes were likely to have been bought at significant discounts, the buying favoured the medium quality
Basrah Light and Basrah Medium. The difference was stark when compared to India and South Korea where the purchases were
tilted more towards Basrah Heavy, though the newly launched Basrah Medium grade has also found good interest. Refiners in
Med with access to exports of Kirkuk and other Kurdish grades via Ceyhan, Turkey have balanced purchases across the different
grades.
Figure: Destination of Iraqi crude oil exports in 2021 YTD split by grades

Source: Refinitiv Oil Research

Importer wise grades- India- 2021 YTD

Jamnagar houses one of the single largest refining complexes in the world owned and operated by Reliance. The integrated
refining and petrochemicals complex has deep conversion capabilities. The port of Sikka is used by both Reliance, Jamnagar and
BORL’s Bina refinery for import of crude oil. Majority of imports into the port of Sikka is Basrah Heavy grade out of the flagship
grades with the newly launched Basrah Medium also finding preference. The heavy and very high sulphur Qayyarah crude was
one of the regularly imported grades when exports were ongoing. Straight Run Fuel Oil cargoes from Iraq are also seen
discharging time to time in the port. Vadinar houses the other complex private refinery owned by Nayara Energy and IOC’s SPM
which connects with pipelines used to meet the crude oil requirement of the state refiners’ refineries in the northern hinterland.
Here again, Basrah Heavy finds priority with Basrah Medium and Basrah Light finding near equal preference. Paradip refinery
owned by IOC imports more of Basrah Light while CPCL, a subsidiary of IOC based out of the South Eastern city of Chennai
shows an inclination towards Basrah Heavy. BPCL’s refineries that depend on imported crude are located at Cochin (Kochi) and
Mumbai. The Kochi refinery was upgraded with augmentation of CDU and coker capacity as part of the Integrated Refinery
Expansion Project and has resulted in the refiner increasing purchases of Basrah Heavy. HPCL operated Mumbai and
Vishakhapatnam (Vizag) refineries have shown more inclination towards Basrah Light. MRPL operated Mangalore refinery imports
more of Basrah Light.

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 IRAQ: OVERVIEW 15

Source: Refinitiv Oil Research

Importer wise grades- South Korea- 2021 YTD

South Korean refiners have predominantly imported Basrah Heavy crude oil in 2021 with the exception of S-Oil’s Onsan refinery
where Basrah Medium and Basrah Light were imported and GS Caltex’s Yeosu refinery where Basrah Medium was also
imported.

Source: Refinitiv Oil Research

Date of issue: 01/07/2021

 IRAQ: OVERVIEW 16

Importer wise grades- Greece- 2021 YTD

Greek refiners Hellenic Petroleum and Motor Oil Hellas (MOH) are significant buyers of Iraqi crude oil in the Med region. The
MOH operated refinery has imported in near equal proportion Basrah Light, Basrah Medium and Kirkuk in the current year till date
with the remaining quantity being Basrah Heavy. The Hellenic Petroleum operated facilities at Pachi and Thessaloniki have
received Basrah Heavy, Basrah Medium, Kirkuk and other Kurdish crude oil grades in YTD.

Source: Refinitiv Oil Research

Return of Iran and likely impact on Iraqi exports

The return of Iranian crude oil in the market is likely to pose the single biggest challenge for the marketing of Iraqi oil in the near
to medium term. With talks underway between Iran and global powers, the question of when sanctions on Iranian oil exports would
be lifted remains but it is certain that when the sanctions are lifted, Iran would want to maximize exports and regain lost market
share in key consumer countries. There have already been reported interests by Indian and Mediterranean refiners to resume
Iranian purchases once sanctions are lifted. Japan and South Korea are two other key markets that Iran would like to target. Some
of these countries have increased their purchases of Iraqi oil post the imposition of sanctions which has resulted in Basrah OSPs
finding support. These refiners have also had a long history of importing Iranian oil and any shift in purchases could see Iraq
ceding market share. This could either lead to Iraq competitively pricing the crudes to retain share or actively seek new markets
for the crude oil, the likelier alternative being pricing.

Key destinations of Iranian crude oil

35.00%

30.00%

25.00%

20.00%

15.00%

10.00%

5.00%

0.00%
China India Turkey Japan Italy South France Spain Greece Egypt Others
Korea

Source: Refinitiv Oil Research; Flows Data considered only for the period when sanctions were lifted or wind-down was allowed

Date of issue: 01/07/2021

 IRAQ: OVERVIEW 17

Downstream

Refineries in Iraq:
Iraq’s total nameplate refining capacity is 1.2 mnbpd, but the refinery intake has been historically low - averaging around 50-60%
of the capacity mostly due to the conflicts in the country. Since 2017 refinery runs have ranged between 500 kbpd to 700 kbpd
averaging at ~570 kbpd including the refineries in both federal Iraq and Kurdistan region. In the absence of sufficient upgrading
units, the refinery yields are geared more towards Fuel oil, resulting in surplus of Fuel oil for the country and deficit for other
premium products such as Gasoline and Gasoil.

Refinery Intake, kbpd

700

600

500

400

300

200

100

0
Jul/14

Jul/15

Jul/16

Jul/17

Jul/18

Jul/19

Jul/20
Jan/14

Jan/15

Jan/16

Jan/17

Jan/18

Jan/19

Jan/20

Jan/21
Mar/14

Mar/15

Mar/16

Mar/17

Mar/18

Mar/19

Mar/20

Mar/21
May/14

Sep/14
Nov/14

May/15

Sep/15
Nov/15

May/16

Sep/16
Nov/16

May/17

Sep/17
Nov/17

May/18

Sep/18
Nov/18

May/19

Sep/19
Nov/19

May/20

Sep/20
Nov/20
Iraq Refinery Output, kbpd
900

800

700

600

500

400

300

200

100

0
May/14
Jul/14

May/15
Jul/15

May/16
Jul/16

May/17
Jul/17

May/18
Jul/18

May/19
Jul/19

May/20
Jul/20
Jan/14

Jan/15

Jan/16

Jan/17

Jan/18

Jan/19

Jan/20

Jan/21
Mar/14

Mar/15

Mar/16

Mar/17

Mar/18

Mar/19

Mar/20

Mar/21
Sep/14
Nov/14

Sep/15
Nov/15

Sep/16
Nov/16

Sep/17
Nov/17

Sep/18
Nov/18

Sep/19
Nov/19

Sep/20
Nov/20

Naphtha Gasoline JetKero Gasoil Fuel Oil Other Fuel Total

Source: JODI/Refinitiv Oil Research

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 IRAQ: OVERVIEW 18

Source: Refinitiv Oil Research/Eikon

Refinery Name Nameplate Capacity(kbpd) Company

Baiji 310 North Refineries Company
Kirkuk 56 North Refineries Company
Sininya 30 North Refineries Company
Hadeetha 16 North Refineries Company
Qayara 20 North Refineries Company
Kasak 10 North Refineries Company
Daura 210 Midland Refineries Company
Najaf 30 Midland Refineries Company
Samawah 30 Midland Refineries Company
Diwaniya 20 Midland Refineries Company
Basra/Shuaiba 210 South Refineries Company
Missan 40 South Refineries Company
Nassiriya 30 South Refineries Company
Kalak (near Erbil) 110 KAR Group (Iraq Kurdistan)
Ninenwa 60 KAR Group (Iraq Kurdistan)
Bazian (near Sulaimanya) 40 Qaiwan Group (Iraq Kurdistan)
Dukan 20 Kurd Oil (Iraq Kurdistan)
Total Capacity 1242

Date of issue: 01/07/2021

 IRAQ: OVERVIEW 19

In Federal Iraq, all the refineries are operated by state entitities namely North Refineries Company, Midland Refineries Company
and South Refineries Company, while refineries in Kurdistan region are operated by three private group i.e. KAR Group, Qaiwan
Group and Kurd Oil.

Out of the refineries mentioned in the table above, Baiji refinery was the biggest refinery in terms of nameplate capacity before it
was damaged in conflict. Baiji refinery's Salahudin/1 part with capacity of 70,000 bpd, was rehabilitaed in mid 2018 , while the
refinery's Salahudin/2 part, with a capacity of 70,000 bpd was rehabitilated in Jan 2021, increasing the total production to 140
kbpd. Iraq now plans to restore the third and final unit, the 170,000 bpd Baiji North unit, which is expected to come online in the
next two years.

Apart from Baiji Refinery, two other major refineries are the Basra refinery with an operational capacity of 200 kbpd followed by
the Daura refinery with an operational capacity at 140 kbpd.

Refinery Upgradation/Expansion plans:

Karbala: It is a greenfield refinery for which construction is in progress and as per the Iraqi Oil Minister, the refinery should come
on stream in September 2022. It is a 140kbpd refinery in Karbala, south of Baghdad. The refinery will produce liquefied gas,
gasoline, gas oil, fuel oil, jet fuel and asphalt and the oil produced will meet the European standards.

Kirkuk: The Iraq oil ministry has signed a contract with Rania International Company in 2018 to construct the refinery, with 70,000
bpd capacity, near the northern city of Kirkuk. However, there is no further update on the progress of the refinery construction.

Nasiriyah: In 2017, the oil ministry proposed a 300 kbpd integrated refinery to be built in Nasiriya, southeast of Baghdad. However,
later the capacity was trimmed to 150 kbpd. In 2018 Iraq oil Ministry had approved a preliminary agreement with Vancouver-based
Pacific Future Energy to build the refinery, but there seems to be no progress on the ground.

Maissan: Iraq had started construction of $6-billion 150 kbpd greenfield refinery in the country’s southern-border province of
Maissan in 2016 after EPC contract was signed with Satarem in October 2013 for the Maissan refinery’s construction. In early
2018, it was reported that Iraq oil ministry had warned of contract cancellation as there was no tangible progress in the refinery
construction.

Fao: Iraq plans to build an oil refinery at the port of Fao and had signed MOU with two Chinese companies in 2018. The Fao
refinery in the south of Basra is one of several Iraqi plans as it seeks to become self-sufficient in oil products. As reported by
Reuters recently in 2021, Iraq plans to invite international energy companies and investors to compete for building the refinery in
its southern port of Fao, which will also include a petrochemical plant.

Basra: South Refineries Co. which operates the Basra refinery has let a contract to provide engineering, procurement,
construction, and commissioning for a series of new units to upgrade the refinery. This upgrading of the Basrah refinery on land
adjacent to the existing refinery will newly install, a Fluidized Catalytic Cracking unit (FCC) - 34,500 bpd, a Vacuum Distillation
Unit (VDU) - 55,000 bpd, and a Diesel Desulfurization unit - 40,000 bpd, amongst other units, increasing production to 19,000 bpd
of gasoline and 36,000 bpd of diesel fuel, as reported by the company that received the contract. This could reduce the gap in
supply and demand for petroleum products.

Date of issue: 01/07/2021

 IRAQ: OVERVIEW 20

Pipeline:

Nameplate
Pipeline
Name/description capacity Status Notes
direction
(kbpd)
Fishkhabur (Iraqi- The pipeline transports oil produced in northern
Turkey section of Iraq Turkey border) to Iraq to the Turkish port of Ceyhan. It is
1,500 Operating
to Turkey (IT) pipeline Ceyhan port connected to KRG's main pipeline. The pipeline
(Turkey) consists of two parallel lines.
KRG's independent This pipeline carries crude oil produced at the
Khurmala Dome
pipeline to Turkey 1,000 Operating Khurmala Dome and crude oil sent there from
to Fishkhabur
pipeline nearby fields, including Taq Taq.
The pipeline transports oil produced at the
Tawke field, operated by DNO, to Fishkhabur.
DNO-KRG to Turkey Tawke field to
200 Operating From there, it connects to the Turkey pipeline for
pipeline Fishkhabur
export at the Ceyhan. DNO and its partners are
expanding the pipeline's capacity.
The pipeline was the target of militant attacks
and stopped operating in March 2014. The
Iraq section of Iraq to Kirkuk to Not pipeline's effective capacity was significantly
600
Turkey (IT) pipeline Fishkhabur operating lower than its nameplate capacity before its
closure. Crude oil exports from the pipeline
averaged 260,000 b/d in 2013.
One section of the pipeline links to Syria, and a
Kirkuk to Banias
Kirkuk-Banias/Tripoli Not branch goes to Lebanon. The pipeline was
(Syria) and to 700
Pipeline operating closed in the 1980s and opened in 2000. It was
Tripoli (Lebanon)
closed again in 2003 after it was damaged.
This pipeline is reversible and transports
northern Kirkuk crude oil to the southern Basra
Kirkuk to Persian Partially Port and vice versa. The pipeline section from
Strategic pipeline 800
Gulf operating Basra to Karbala is operating with a capacity of
40,000 b/d and transports crude oil to Baghdad
refineries.
Southern Iraq to Iraq portion The portion that runs through Saudi Arabia was
Iraq pipeline to Saudi
port of Mu'ajjiz in 1,650 is not converted to transport natural gas to power
Arabia (IPSA)
Saudi Arabia operating plants
Source: EIA

Date of issue: 01/07/2021

 IRAQ: OVERVIEW 21

Refined Products trade flows

Imports of clean refined products

With operational refining capacity falling short of the domestic Iraq- Refined Product Imports (KT)
demand for petroleum products, the country continues to import 4500
gasoil and gasoline. Multiple refineries in the country remain
damaged because of the long conflict with ISIS, running at lower 4000
capacity and affecting domestic production. The other major 3500
issue with Iraq refineries is the lack of upgrading units as most 1878
3000
of them are Hydroskimming setups, which results in a high yield
of Fuel oil and lower production of premium transport fuels. 2500 1686
1915
The country saw a surge in imports through 2019 before falling 2000
in 2020 due to COVID-19 restrictions. Gasoline imports in 2020 1500
were assessed at 1.68 million MT against 1.88 million MT in
1000 2197
2019. However, Gasoline imports in the first five months of 2020 1607 1254
have already breached 1.2 million MT and is set to surpass 2020 1378
500
imports. Following Gasoline, Gasoil forms the next largest 291
component of Iraq’s petroleum product imports. Gasoil imports 0
2018 2019 2020 YTD- 2021
totalled 1.6 million MT in 2020 compared to almost 2.2 million
Diesel / Gasoil Gasoline
MT in 2019, however imports for the first five months in 2021
have fallen to just about 291,000 MT. Source: Refinitiv Oil Research

Between 2017 and 2019, Iraq imported on an average USD 2,674 million worth of oil products per year. Gasoline accounted for
about 60% of the total product imports by value, followed by gasoil and jet/kerosene. State Organization for Marketing of Oil
(SOMO) last year awarded a tender to import 1.53 million MT of Gasoil through January to December in 2021, while tender for
Gasoline imports was awarded for 2.205 million MT for delivery at Khor Al Zubair during February to December 2021. Quantities
for both Gasoil and Gasoline imports for 2021 are approx. 17% lower than 2020 import volumes.
Gasoline: Supply & Demand (KT) Gasoil: Supply & Demand (KT)
180
200
160 180
140 160
120 140
100 120
80 100
60 80
60
40
40
20
20
0 0
Apr-15

Jul-16

Oct-17

Apr-20
Jan-14
Jun-14
Nov-14

Sep-15

Dec-16

Aug-18
Jan-19
Jun-19
Nov-19

Sep-20
Feb-16

May-17

Mar-18

Feb-21

Nov-14

Sep-15

Dec-16

Aug-18

Nov-19

Sep-20
Jul-16
Jan-14
Jun-14

Jan-19
Jun-19
Apr-15

Feb-16

Oct-17
Mar-18

Apr-20

Feb-21
May-17

Gasoline-Production Gasoline-Demand Gasoil-Production Gasoil-Demand

Imports (Million US$) Oil Product import Value ( Million US$)

2000
40000 36952.0
31572.0
1819

1762

1500
34139

30000
1444

20902.0
29137

869 926 945

1000
20000
18128

10000 500
2435 2813 2774 122.5 68 66
0 0
2017 2018 2019 2017 2018 2019
Oil Products Non -Oil Products Total Commodities Gasoline Gasoil JetKero
Source: JODI/Refinitiv Oil Research/ Central Statistical Organization (CSO), Iraq

Date of issue: 01/07/2021

 IRAQ: OVERVIEW 22

Key Suppliers
UAE, Oman, Netherlands, Singapore, and India are the major suppliers of gasoline and account for more than 93% of Iraq’s total
Gasoline import. UAE accounted for 62% of total gasoline imports into Iraq in 2020, with 26% of total Iraqi imports originating from
the trading hub of Fujairah. UAE, Saudi Arabia, India, Kuwait and Singapore were the top countries from where Iraq has been
sourcing gasoil. These five countries constitute more than 84% of Iraq’s total gasoil imports. In 2020, UAE accounted for 45% of
the total gasoil imports into the country, with 17% of total Iraqi imports coming from Fujairah.
Figure: Top suppliers of refined products

Gasoil Imports- Top Suppliers (KT) Gasoline Imports- Top Suppliers (KT)
1400
1400
1200
1200
1000
1000
800
800
600
600
400
400
200
200
0
UAE Saudi India Kuwait Singapore Qatar 0
Arabia

2018 2019 2020 YTD-2021 2018 2019 2020 YTD-2021

Source: Refinitiv Oil Research

Exports of refined products

Iraq - Refined Product Exports - KT

3000

2500

2000
1728
1500
1526

1000
1148 812

500
846
620 593
348
0
2018 2019 2020 YTD 2021
Others Naphtha
Source: Refinitiv Oil Research/Refinitiv Eikon *Others include Gasoil/Diesel/Gasoline/Jet/Other Clean Products

Exports from Iraq have averaged around 2 million MT in the last three years with Naphtha accounting for more than 68% of the
total volumes. UAE accounts for 61% of the total Naphtha exports from Iraq most of which are offloaded into Fujairah storage,
while other destinations include South Korea, Taiwan, Singapore and Malaysia.

Date of issue: 01/07/2021

 IRAQ: OVERVIEW 23

Iraq Fuel Oil Market Fundamentals

Iraqi fuel oil demand has taken a major hit through the COVID-19 pandemic. According to JODI data, domestic consumption
averaged 136,000 bpd in Q1 2021 compared to 254,000 bpd in Q1 2019. This represents a 46% reduction over the two-year
period. Sustained fuel oil demand is likely to stem from the domestic power market which is undersupplied nationally and does
not appear to be detrimentally impacted by the COVID-19 pandemic. Iraqi gas flows for electricity production increased year-on-
year in 2020 during the peak summer months. The dip in demand is therefore likely to come from lower industrial and shipping
activities, as well as a reduction in grey market activities due to restrictions on movements.
Figure: Iraq Fuel Oil Market Fundamentals

Source: Refinitiv Oil Research, JODI

Production fell considerably following the initial outbreak in Q2 2020 but bounced back relatively quickly. Fuel oil production
averaged 318,000 bpd in Q1 2021 compared to 319,000 bpd in Q1 2020 and 309,000 bpd in Q1 2019. This implies that domestic
refineries are running at the same utilization rates irrespective of demand changes for fuel oil, possibly to meet demand for other
refined products of which Iraq is a net importer.

Iraq’s heavy sour crude yields an estimated 45% fuel oil output at atmospheric distillation and the government-dominated
downstream sector lacks the secondary processing capacity to upgrade straight run fuel oil (SRFO). Of the eleven refineries that
are currently operational in Iraq, as per IIR data, just three have secondary refining capacity of any significance. South Refineries
Company’s 210,000 bpd crude processing Basrah Refinery has 142,000 bpd in secondary unit capacity, which includes a 17,650
bpd vacuum distillation unit for SRFO processing, as well as other upgrading units. Midland refineries Company’s 165,000 bpd
Daurah Refinery has 127,000 bpd in secondary processing capacity, much of which is dedicated to residual upgrading. The plant
has three vacuum distillation units with 30,000 bpd in combined capacity, as well as lubricant and asphalt units. The 160,000 bpd
Erbil Refinery has 55,000 bpd in secondary processing capacity, but this is dedicated to light and middle distillate refined products
streams, as are other secondary processing capacity units among Iraq’s other, smaller, and less complex refineries. IIR data
indicates that Iraq has an estimated 48,000 bpd of SRFO processing capacity at two of its eleven operational plants.

Date of issue: 01/07/2021

 IRAQ: OVERVIEW 24

Figure: Iraq Primary & Secondary Refining Capacity

Source: IIR & Refinitiv Oil Research

Figure: Iraq Secondary Refining Capacity by Product Stream

Source: IIR & Refinitiv Oil Research

Date of issue: 01/07/2021

 IRAQ: OVERVIEW 25

Clearing the overhang

Iraq’s fuel oil surplus has grown by 244% through the COVID-19 pandemic. A comparison of JODI’s fuel oil production and
consumption data shows that Iraq had a fuel oil surplus of 182,000 bpd, or 881,000 MT per month, in Q1 2021. The extent of the
surplus is considerably higher than pre-pandemic when the surplus stood at 53,000 bpd, 256,000 MT per month.
These large volumes of fuel oil create a logistical challenge for refiners that have limited fuel oil storage and pipeline capacity. In
the recent past, excess fuel has been re-injected into domestic oil fields or injected into the crude export system, which can
destabilize the quality of crude blends. The domestic power sector is a major buyer and in northern regions fuel oil has been
known to be smuggled overland to Iran and Turkey.
Much of the surplus is directed to the international export market through the southern export terminals at Khor Al Zubair (KAZ).
Based on historical tender information from SOMO, Iraqi fuel oil has a viscosity of 100-380 CST and a sulphur content of 3.5-6%.
Due to its low viscosity and high sulphur content, Iraqi fuel oil is unsuitable for bunkering in the shipping sector due to strict sulphur
limits, or the international power sector which tends to burn cracked fuel oil. Instead Iraqi SRFO is sold to refiners as an
intermediate feedstock for further processing.

Fuel Oil Exports

Iraq’s State Oil Marketing Organization (SOMO) has a monopoly on all Iraqi oil sales, including fuel oil which is officially sold on
a tender basis. In the latest supply tender spanning April to September, SOMO offered 750,000 MT per month (155,000 bpd) of
SRFO from April to September. Media reports indicate that the tender was awarded at 375,000 MT per month to Chevron, 190,000
MT to Reliance Industries, and 190,000 MT to an unnamed Iraqi trading company. Iraqi SRFO attracted a $25/MT premium to
Middle East Fuel Oil 180-CST prices. Previous tender winners include Thailand’s PTT and Iraqi buyers Shuaa Altaka and Anlel.
Table: SOMO Fuel Oil Tender Results
Buyer Product Volume Date Issued From To

Chevron SRFO: 3.7-5% Sulfur, 375,000 MT pcm March 2021 April 2021 September 2021
108-307cst (estimated)

Reliance Industries SRFO: 3.7-5% Sulfur, 190,000 MT pcm March 2021 April 2021 September 2021
108-307cst (estimated)

Unknown Iraqi Trader SRFO: 3.7-5% Sulfur, 190,000 MT pcm March 2021 April 2021 September 2021
108-307cst (estimated)

Figure: Iraqi Fuel Oil Export Destinations (2020-2021)

There is a limited spectrum of buyers with sufficient secondary
refinery capacity necessary to procure and process large
volumes of SRFO. Chevron and Reliance Industries
dominated the latest tender round. This is also reflected in the
destination mix for fuel oil exports from Iraq. Since the start of
2020 India has received 20% of Iraqi fuel oil exports,
Singapore 19%, Malaysia 10%, South Korea 6%, and China
3%. All destinations are major refining hubs with high
complexity and located in key downstream demand centres.
The United Arab Emirates (UAE) is the number one destination
for Iraqi fuel oil exports, receiving 39% of total shipments
through 2020-2021. Much of this fuel oil is shipped on small or
medium sized tankers and discharged via ship-to-ship transfer
or into storage at the trading and bunkering hub in Fujairah.
These flows may be facilitated by lesser known traders and
resellers that often feature in the SOMO tendering process. At
Fujairah the fuel may be blended or sold directly into the local
bunker market, or re-exported. Source: Refinitv Oil Research

Date of issue: 01/07/2021

 IRAQ: OVERVIEW 26

Observed fuel oil exports from Iraq in 2021 are 75% higher than official reports. Official Iraqi fuel oil exports reported to JODI in
Q1 2021 averaged 170,000 bpd (823,000 MT per month). SOMO’s 750,000 MT SRFO tender occupies the majority of that first
quarter export volume, which could fall during the summer months when domestic power demand peaks. Meanwhile Refinitiv ship
tracking dats observed 1.441 million MT per month (298,000 bpd) in fuel oil loadings from Iraqi waters in Q1 2021. The delta of
128,000 bpd cannot be easily explained; however, it is understood that high sulphur fuel oil supply from neighbouring Iran is
augmenting Iraqi fuel oil exports as several ships indicate their destination as Iraq, while the cargo ultimately loaded are expected
to be of Iranian origin. With the AIS tracking data turned off, it is not possible to track the vessels to their actual point of loadings
which in most cases are expected to be offshore KAZ or outer port limits of Iraq.

Figure: Total Quarterly Fuel Oil Exports by Destination (KT)

Source: Refinitiv Oil Research

Domestic consumption - Power

Power outages are commonplace in Iraq and the gap between peak demand and power generating capacity is growing. This is
most acute during summer months when cooling demand is at its highest. Moreover, much of Iraq’s power needs are met by
direct energy imports from Iran. In addition to the shortfall in power generation, transfer losses are substantial, with reports that
50-60% of electricity produced is lost in transmission and distribution. As such, power generation units could theoretically operate
at full capacity around the clock and still find a market for electricity.
Hydrocarbons play a major role in Iraq’s power sector. IIR catalogues 625 gas-fired power stations in Iraq with a combined capacity
of 48,945 MW. Oil plays a much smaller role. There are 430 oil-fired power stations in the country, with a combined capacity of
5,392 MW. Oil accounts for just 10% of total oil & gas power generation in Iraq.
The power sector is a major driver of domestic oil demand and an important sink for the country’s fuel oil surplus. Between 2018
and 2020, direct crude burn for power averaged 32,000 bpd, according to JODI data. In demand terms, this accounts for an
estimated 700 MW of power generation capacity, based on EIA liquid petroleum to power conversion estimates. Assuming
generators run at 100% utilization, Refinitiv Oil Research estimates the remaining 4,692 MW of oil-fired power capacity represents
demand potential of 185,000 bpd of fuel oil.

Power generation for public distribution and consumption is a state enterprise and public entities are the main operators of gas-
fired and oil-fired power plants in Iraq. IIR data shows that in capacity terms, the Ministry of Electricity of Iraq operates 70% of oil-
fired power stations, with potential fuel oil demand capacity for 150,000 bpd. The Ministry of Electricity for the Kurdistan Regional
Government operates 21% of national oil-fired power capacity, representing 44,000 bpd in potential fuel oil capacity. The
remaining 9% of the market is fragmented. Small industrial players, such as oil and gas operators and cement manufacturers own
and operate off-grid oil-fired power stations for commercial needs.

Date of issue: 01/07/2021

 IRAQ: OVERVIEW 27

Figure: Fuel Oil Demand Potential by Power Sector Operators

Source: IIR & Refinitiv Oil Research

Difficulty in identifying the origin of Fuel oil (Iran vs Iraq)

In an effort to stamp its authority on the Iraqi fuel oil trade, enhance transparency and combat legal or reputational threats, SOMO
has openly tendered fuel oil sales and tanker charters, publicly identifying counterparties and vessel names involved in the trade.
In February 2021, the state actor issued the following statement:

“Oil Marketing Company (SOMO) wishes to clarify to public opinion and those interested in the petroleum matters that (SOMO) is
the sole and exclusive entity that legally authorized to export Iraqi crude oil and its petroleum products. It also confirms that the
export of the Iraqi fuel oil product at this stage will be through the southern port exclusively from the floating tanks (Pola & Evgenia
I) anchored in the anchorage area at the Iraqi territorial waters in the Arabian Gulf. And the announcement of the sale of shipments
of this product by other parties as being shipments of Iraqi origin, they are illegal, and these parties bear the full legal responsibility
that these shipments are smuggled, for which Iraqi law is held accountable.”
Due to fuel oil infrastructure constraints in the south of the country, SOMO is employing floating storage tankers for domestic oil
storage in the Khor al-Zubair anchorage, as well as a small fleet of Medium and Coastal tankers to conduct reverse lightering
activities from the ports of Umm Qasr and Khor al-Zubair. It is important to keep these volumes flowing into floating storage and
onto the export market via ship-to-ship transfer to prevent system backups and a reduction in domestic refinery runs.

SOMO recent announcements – For legal FO storage tankers

In February 2021, Suezmax Pola and VLCC Evgenia I were named as the exclusive loading points for official Iraqi fuel exports.
However, vessels used for Floating Storage are usually Time chartered and hence depart the anchorage on completion of their
charter and are replaced with new storage tankers. The two vessels announced earlier have now left the Khor Al Zubair anchorage
and are trading other routes. There has been no official update from SOMO, however Renfitiv ship tracking data and third-party
sources in the region, indicate that VLCC Polymnia I and VLCC Sake are the likely replacements.
The proximity of Iraqi and Iranian export infrastructure and congestion of marine traffic is problematic for cargo tracking. AIS
coverage is patchy and vessel operators frequently deactivate transmitters to avoid detection. This significantly impedes the
efficacy in monitoring vessel movements and ship-to-ship transfer activity in the Khor Al Zubair and Basra anchorages.

The location of Iran’s 400,000 bpd Abadan Refinery on the Shaat-al-Arab River is noteworthy in relation to outsized Iraqi fuel oil
exports. The plant is fully operational and boasts advanced residual processing units including 101,000 bpd vacuum distillation
capacity and a 90,000 bpd visbreaker, according to IIR data. The plant yields significant volumes of cracked fuel oil which
contributes to Iran’s 447,000 bpd of historical fuel oil production levels, as per 2017 JODI data. Unknown quantities of Iran’s high
sulphur fuel oil surplus are disguised and exported as Iraqi fuel oil in order to evade US sanctions. It is widely understood within
the Middle East oil market that supplementary supplies from Iran contribute to the 128,000 bpd delta between reported fuel oil
exports from Iraq and loaded volumes observed in ship tracking data.

Date of issue: 01/07/2021

 IRAQ: OVERVIEW 28

Source: Refinitv Oil Research

Date of issue: 01/07/2021

 IRAQ: OVERVIEW 29

Refinitiv Oil Research MENA

Oil_Research_MENA@refinitiv.com

Ranjith Raja – Oil Research Manager

Ranjith.Raja@refinitiv.com

Sudharsan Sarathy – Senior Analyst, Oil Research

Sudharsan.Sarathy@refinitiv.com

Timothy France – Senior Analyst, Oil Research

Timothy.France@refinitiv.com

Abhishek Kumar – Senior Analyst, Oil Research

Abhishekkumar8@refinitiv.com

Mohammed Yasser - Analyst, Oil Research

Mohammed.Yasser@refinitiv.com

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Date of issue: 01/07/2020