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Why Iraq Thinks It Can Skip OPEC’s Oil Production Cut

By Motley Fool Staff – Nov 7, 2016 at 9:20AM

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The ongoing war with ISIS is expensive, and has taken a toll on Iraq's crude oil output for awhile, so the government in Baghdad is asking its fellow cartel members to cut it some slack.

The OPEC nations have agreed to a proposed crude oil production cut of about 4%; however, this week, Iraq argued that it should be exempted from that cut due to its ongoing civil war.

In this clip from Industry Focus: Energy, Motley Fool analysts Sean O'Reilly and Taylor Muckerman look at the reasoning behind Iraq's opting out of the production reduction, and how other OPEC members might respond.

A full transcript follows the video.

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This podcast was recorded on Oct. 27, 2016.

Sean O’Reilly: We have to check in on how OPEC is doing over there with their supposed cut negotiations.

Taylor Muckerman: Yeah, they said they were going to cut about 4%. That's what they told Russia, trying to get them on board. But then Iraq was like, "We don't really feel like we should comply."

O'Reilly: Yeah. They said, "We have a civil war going on," which has kind of been the story for a while. What do you think about that? They're basically saying, "No, we really need this money to fight these people."

Muckerman: Yeah, they're fighting ISIS. They have that war going on. They compare themselves to Iran and Nigeria -- they are granted amnesty from these cuts because civil war and sanctions have been impacting their ability to produce oil for the last several years, at least. So Iraq is trying to put itself in that same boat and say, "You know, we've been dealing with this, we need the funding from oil, and we're finally really ramping up again, so we're not going to cut." But they said they will go to the meeting, and they will address this cordially, but kind of an opening shot across the bow before the meeting even begins.

O'Reilly: I'm interested to see what happens, and then we're going to move on. It's going to be interesting, because it's going to be: How badly does Saudi Arabia want to do this cut? Because they're obviously going to pick up a lot of the slack.

Muckerman: Yeah, they're the biggest producers.

O'Reilly: I do wonder if they pull Iraq to the side and be like, "Hey, we'll write you a $50 billion check if you cut."

Muckerman: It would definitely help support oil markets if they did cut. I would imagine, if they don't agree to this after suggesting it earlier this month ...

O'Reilly: And teasing all of us for months.

Muckerman: Yeah, the oil markets probably have the idea of the cut baked in, so that if they don't cut, prices could fall out again.

O'Reilly: It will not be pretty.

Muckerman: Well, you would imagine it would be. Can't make any promise. But you would imagine that if OPEC backs out from another agreement, people would just stop taking them seriously altogether.

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