(EnergyAsia, January 12 2014, Monday) — With Brent crude prices plunging to a near six-year low below US$50 a barrel, the International Monetary Fund (IMF) may have to lower its earlier forecast for Iraq’s oil-dependent economy to grow by two percent this year.

An IMF team which met Iraqi Minister of Finance Hoshyar Zebari and other government officials in early December had raised the war-torn economy’s prospects after an earlier survey in October had called for it to expand by just 1.5% in 2015. The Iraqi economy was expected to rebound on account of rising domestic oil production after shrinking by an estimated 0.5% last year.

Brent crude was trading at around US$70 in early December amid hopes that prices were probably ready for a rebound after falling from a high of US$115 in June. Instead, the North Sea benchmark has fallen another US$20 a barrel to a low of US$48.90 in early January as fears grow that the global oil glut could push prices down by at least another US$10 a barrel.

“Growth is projected to rebound to about two percent as oil production and exports increase further, helped by the recent agreement between the central government and the Kurdistan Regional Government (KRG) on oil exports from KRG and the Kirkuk oil fields,” said the December statement issued by the IMF team led by Carlo Sdralevich. It said the economy had shrunk by a smaller rate in 2014 than the 2.7% projected in October.

“Iraq’s GDP is expected to contract by about 0.5%…largely because of the economic effects of the ISIS (Islamic State) insurgency,” it said. The country’s non-oil sector has been dealt a major blow by the destruction of infrastructure, reduced access to fuel and electricity, low business confidence, and disruption in trade.

In contrast, the oil sector has been able to operate relatively smoothly as most of its infrastructure is in the south of the country and beyond the reach of ISIS, said the IMF.

Including Kurdistan’s output, the IMF said Iraq produced an estimated 3.3 million b/d in 2014, up from 3.1 million b/d in 2013, with exports remaining at 2013 levels of 2.5 million b/d.

Towards the end of last year, Baghdad and the semi-autonomous KRG, which has long claimed a section of oil-rich Iraq, settled their long-running dispute over oil and revenue sharing.

Under the Baghdad Agreement, the KRG will deliver 250,000 b/d of its production to the central government and facilitate the export of 300,000 b/d Kirkuk crude through a pipeline that it controls. In return, Baghdad will resume paying the KRG 17% of the federal revenue that had been suspended since early 2014. The Iraqi government will also pay the KRG to help fight ISIS.

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