Iraq: a mega-oil field emerges just as Hormuz blocks the sea lanes

Iraq has just discovered billions of barrels of oil in the middle of the desert, while the country is already struggling to export its current production. It's an almost perfect image of the current energy crisis: crude oil underground, tankers slowing down, tanks full, a sea route turned into a bottleneck. In the south of the country, in the province of Najaf, near the border with Saudi Arabia, a new mega field has just been announced.

Just a few "political kilometers" away, the Strait of Hormuz, the passage between Iran and Oman through which a huge proportion of the world's crude oil transits, continues to reveal the fragility of a system built on compulsory routes, regional wars and geographical bottlenecks. The Iran-related war and the blockage of traffic across the Straits have already caused Iraqi production and exports to plummet, highlighting a paradox: a country immensely rich in oil can become vulnerable at the very moment when its wealth remains trapped on the road to market.

The discovery concerns the al-Qarnain (or Qurnain) block, an area of around 8,773 square kilometers in southwest Iraq. The Shams-11 exploration well is said to have uncovered reserves estimated at some 8.8 billion barrels of light crude, with an announced initial production of 3,248 barrels per day. These are considerable figures, to be treated with caution; an exploratory estimate remains a first snapshot. Verification, investment, installation, liaison and years of work will be required before stable commercial production can be achieved. But the political message has already been sent.

Oil under Najaf

The deposit discovered in the al-Qarnain block is located in an area that is still relatively unexploited compared with Iraq's large historical fields. The Chinese company ZhenHua Oil, via its subsidiary Qurnain Petroleum Limited, is the main operator of the exploration drilling and seismic surveys. Following the results of the Shams-11 well, the company proposed an accelerated investment plan to move more quickly from the exploratory phase to commercial production. ZhenHua had secured the block in the 2024 licensing round, at a time when Iraq was looking for new capital and new areas to develop, in order to bolster its future production.

For Baghdad, this is significant news, as Iraq remains one of the world's major oil-producing countries. According to theU.S. Energy Information Agency (EIA), the country has some 145 billion barrels of proven reserves, representing around 17% of the Middle East's reserves and close to 9% of the world's reserves. Within OPEC, it is the second-largest producer behind Saudi Arabia. In normal times, these figures are synonymous with power. In times of crisis such as these, they reveal a history of dependence.

Before the Hormuz-related interruptions, production from the main fields in southern Iraq hovered around 4.3 million barrels a day. With the strait blocked, production fell by around 70%, to around 1.3 million barrels a day: with reservoirs saturated, crude oil could no longer find its way out of the country. Exports collapsed to around 800,000 barrels a day in the most critical phases. For a state that finances a large part of its public spending from oil, this was no mere technical difficulty. It's a direct blow to the national budget.

Hormuz, the bottleneck

The Strait of Hormuz is one of those names that only makes the headlines when things get out of hand. On ordinary days, it's just a line on a map. These days, however, it's the sticking point where oil tankers, prices, governments, refineries, insurance companies and consumers collide. Around one-fifth of the world's oil and liquefied natural gas flows pass through it. For Iraq, the dependence is even more blatant: around 90% of crude oil exports pass through here, mainly via the southern terminals near Basra.

The impact on revenues was immediate. Iraqi exports dropped from over 99 million barrels in February to 18.6 million in March, while revenues plummeted from $6.81 billion to $1.96 billion. The Iraqi authorities attributed this collapse mainly to the blockage of exports, rather than to a problem of production capacity. In other words: the oil is there, the demand is there and the facilities can restart. The crux of the problem is getting it out.

A multi-billion-barrel field could strengthen Iraq's position over the next few years, attract investment and breathe new life into its energy industry. But this does not resolve its structural fragility: an economy still dependent on oil, in the heart of a region where every military crisis can turn a trade route into a funnel.

New roads, same fossil fuels

Baghdad is attempting to reduce this dependence through new infrastructures. The most important project concerns a pipeline between Basra and Haditha, in western Iraq, with a planned capacity of 2.5 million barrels per day. This line should help the country open up alternative routes to the ports of Ceyhan in Turkey and Banyas in Syria, as well as other regional links. For the time being, an initial envelope of around 1.5 billion dollars has been announced, but the timetable and completion will also depend on future available funding.

Seen from Baghdad, this strategy follows an obvious logic. If Hormuz closes, we need other pipes, other ports, other passages. From a climatic point of view, on the other hand, the situation is more bitter. The world needs to reduce its dependence on coal, oil and gas to reduce greenhouse gas emissions, as international scientific reports have been pointing out for years. And yet, in the face of a crisis fuelled by the vulnerability of the fossil fuel system, the immediate response is still to look for new deposits, build new crude export routes and secure the old model.