Iraq’s oil industry is on a roll. Production has jumped more than 40% since mid-2014 and exports are at near-record levels. It probably won’t last. Plunging government revenue is hampering the state’s ability to invest, while Opec’s second-biggest crude producer is reaching the limits of its capacity to store and export oil, according to analysts at Energy Aspects and FGE. Spending on the country’s biggest fields may shrink to as little as $7bn this year from about $13bn in 2015 and $20bn in 2014, Richard Mallinson of Energy Aspects said yesterday.
Iraq has boosted output after decades of sanctions, war and under-investment, with international companies such as BP and Lukoil developing some of the largest deposits in its oil-rich southern region. The country is exporting 3.3mn barrels a day of crude this month from the southern port of Basrah, and it targets keeping shipments at that level for the rest of the year, Deputy Oil Minister Fayyad al-Nima said in a May 13 interview. Without more investment, these exports are sure to slide, the analysts said.
“We’re going to see production growth flatten and then start to decline by late this year and into 2017,” Mallinson said by phone from London. “What does that mean if Iraq doesn’t deliver growth this year? If you were expecting a big increase from Iraq and we don’t see that, it will add to bullish sentiment in the market.”
While crude continues to flow from Rumaila, West Qurna and other fields in the south, parts of northern Iraq are a battleground for forces trying to dislodge the Islamic State militants who have occupied swaths of territory since 2014. The conflict has prevented the government from exporting oil through its northern pipeline to Turkey, and the collapse of a plan to share oil revenue with the self-ruling Kurds in northeastern Iraq has limited sales from fields in the region.
 These challenges, coupled with financial constraints caused by a plunge in crude to half the average price in 2014, threaten to choke off future investment in Iraq. That could help push prices higher later this year just as rising global demand and faltering supply elsewhere in the world eliminate a glut in crude. The Organisation of Petroleum Exporting Countries is due to meet next on June 2 to assess markets and output policy.
Crude prices have dropped more than 30% since Opec adopted a strategy in November 2014 to defend its market share and drive out higher-cost production from US shale wells, Canadian oil sands and deep-water deposits. European benchmark Brent crude fell to a 12-year low in January before bouncing back to about $49 a barrel this week. Brent traded as much as 1% higher on Tuesday, reaching $49.47 a barrel in London.
Iraq pumped a record 4.51mn barrels a day in January and 4.31mn in April, according to data compiled by Bloomberg. Its total production capacity, including in Kurdish areas, is 4.8mn barrels a day, and increasing that to a target of 5mn will depend on oil prices, al-Nima, the deputy minister, said. Domestic demand for oil as fuel for power plants is also a constraint on exports, al-Nima said.
Investment in Iraq’s southern fields may fall by 30% to 40% this year as the government, which gets most of its income from oil sales, delays payments to foreign companies and limits future spending, said Tushar Tarun Bansal of FGE in Singapore.
“Investment in new wells isn’t getting done, and that will show up in reduced production later in the year,” Bansal said. 
“The market is yet to account for the impact that will have, and it could lead to higher prices.”