The Brent crude oil price at $100 a barrel would be “favorable” for both producers and consumers, Iraq’s Deputy Prime Minister for Energy said Friday, reinforcing a price target set by top OPEC producer Saudi Arabia earlier this year.
“Hundred-dollar Brent, I think will allow the world economy to grow and also encourage other producers to produce at a reasonable profit,” Hussain al-Shahristani told CNBC in an exclusive interview. “$100 a barrel is favorable not only for Iraq, but Iraq can produce at much lower cost.”
Shahristani said crude oil prices -- on track for their biggest quarterly decline since the 2008 financial crisis -- may be close to finding a floor. “$85 to $90 for Brent…I think that’s about the bottom.”
But if Iran acted on threats to close the strategically vital Strait of Hormuz, a transit route for more than a third of the world's seaborne oil exports, benchmark Brent crude may surpass $150 a barrel, possibly “much higher than that,” he said.
“The situation would be extremely serious for the world oil supply and for the world economy. I cannot predict where the prices are going to be in that case but I’m sure we’ll see prices unheard of,” he added.
Shahristani said he couldn’t confirm reports saying Saudi Arabia has reopened an old oil pipeline - built by Iraq to bypass Gulf shipping lanes - to prepare for a possible shutdown of the Strait of Hormuz.
The Iraqi Pipeline in Saudi Arabia (IPSA), laid across the kingdom in the
1980s after oil tankers were attacked in the Gulf by both sides during the
Iran-Iraq war, has not carried Iraqi crude since Saddam Hussein invaded Kuwait in 1990, according to a Reuters report.
“That's a Saudi? decision,” Shahristani told CNBC. “However, I would like to point out that the pipeline was built solely for the purpose of exporting Iraqi crude to the Red Sea and we have asked Saudi Arabia to allow Iraq to reopen and use that pipeline again for the purpose that it was originally built for.”
He added that he could "see the necessity” of opening the pipeline which would transport crude west across the Kingdom to terminals in the Red Sea if Iran? blockades the Strait.
Baghdad has requested Saudi Arabia “more than once” to reopen the Iraqi leg of IPSA pipeline but Riyadh has yet to respond. Global oil markets are in surplus, Shahristani said, adding that the Organization of Petroleum Exporting Countries (OPEC) may consider an output cut later this year if supplies continued to grow.
OPEC’s last meeting in Vienna earlier this month generated “heated discussions,” Shahristani said. Ahead of the meeting some OPEC members suggested Saudi Arabia had been over-producing oil, risking a collapse in prices.
An Iraq Wealth Fund?
Asked whether Iraq would establish a sovereign wealth fund to invest the country’s oil revenues to benefit the country in the long term, Shahristani said Iraq will do so, as it is stated under the constitution, when oil revenue is in surplus.
“For the time being all our revenues are used for reconstruction and I think that will be the case for a few years to come,” he said. “But as we reach our plateau of 10 million barrels per day and if the prices are where they should be…then that will generate three times the revenue that we currently have and that should really cover our needs and leave some surplus room.”
State governors in fellow OPEC producer Nigeria said on Monday they had approved a federal government's proposal to launch a sovereign wealth fund with an initial $1 billion, ending months of political wrangling, according to Reuters.
Earlier this month, Former World Bank Chief Economist Joseph Stiglitz said Myanmar would benefit from securing the revenue accumulated through its oil and natural gas sales into a sovereign wealth fund, helping the fledgling democracy avoid the "resources curse" and distributing wealth more equitably
—By CNBC's Sri Jegarajah