Under tremendous fiscal pressure, OPEC members may cut a deal in Vienna this week that would cap oil production in order to raise global prices. The deal is being championed by the cartel’s largest producer, Saudi Arabia, but the second largest producer, Iraq, has resisted a cap. Although low oil prices threaten Iraq’s stability, Baghdad cannot afford to cut itself off from potential revenue — its already massive public spending has been aggravated by the ongoing war against the Islamic State (IS) and the looming reconstruction effort. Even if it were willing to risk the lost revenue, it could not implement any such commitment because the country’s energy policy and industry remain divided between the central government and the Kurdistan Regional Government. Accordingly, the KRG should consider how it could benefit from helping Baghdad secure an exemption from OPEC’s output quota.

OPEC’S EXPECTATIONS VS. IRAQ’S CHALLENGES

One of OPEC’s central missions is to manipulate global oil prices by limiting global oil supplies, which it does by negotiating output quotas for its members. As in any cartel, however, OPEC deals are marred by cheating. Due to wars and sanctions, Iraq has not seriously committed to such a deal since the inception of the quota regime in 1986, and it has been exempt since 1991. It wishes to remain so, similar to Iran, Libya, and Nigeria. But as a much larger producer than those states, Iraq is under renewed pressure to commit to the imminent production ceiling.

Facing a financial crunch and shrinking cash reserves due to low oil prices, OPEC members have sought to address the global oil glut in recent months, but Baghdad has been quick to push back. Iraq’s production level reached 4.7 million barrels per day (bpd) in September, according to Oil Minister Jabbar al-Luaibi, and its output could increase further due to maturing investment projects, revamped infrastructure, and successful efforts to eject IS from oilfields such as al-Qayyara and Hamrin. Yet while Luaibi is adamantly opposed to a cut, he signaled that Iraq may be amenable to a pr...