IMF Forecasts Iraq Economic Growth.

The IMF director for the Middle East, Mohsin Khan, on Jan. 16 said Iraq's economy in 2008 would expand significantly from the previous 2007's lows as long as the security situation allowed for higher oil output and investment. Iraqi crude oil output was forecast to climb 200,000 b/d to 2.2m b/d in 2008.

Khan said: "We are expecting much higher growth, and it is really coming from the fact that we expect oil production to be higher. We also think that the government will..., if the security situation continues to improve,...that the government will be able to fulfill its major investment plan in the oil and the non-oil sectors". He said the higher oil output would push GDP growth significantly up to over 7%, possibly higher, in 2008 and 2009, from just 1.3% in 2007 when bitter sectarian violence drove the country to the brink of civil war.

Khan said 2007 growth for Iraq may well turn out to be stronger because the IMF's forecast of 1.3% was based on indicators for the first six months of the year. Since then, new data for the second half of 2007 showed economic activity may have been stronger than believed. He added: "The big change is going to be - and what we're hoping for - is oil production. Beyond that for 2009 we also expect it to be in the 7 to 8% range, but of course all of this is conditional on oil production expansion and the security situation improving".

In December, the IMF approved a 15-month US$744m loan agreement for Iraq, which Khan said would focus on maintaining economic and financial stability, and facilitate higher investment and production in the country's key oil sector.

Khan said annual consumer price inflation was targeted to decline to 12%. He said rising crude oil export prices had more than offset production shortfalls and boosted international currency reserves by close to $7 bn. He said that, by end-2007, Iraqi reserves were $27 bn, some $6 bn higher than projected.

Despite a stronger fiscal position, Khan said Iraq would still need aid, particularly when it came to securing the country. He said: "The fact of the matter is we have a very conservative fiscal projection, because we base it on a pretty low price of oil and I think the Iraqis do this by design. So the [crude] oil prices we are assuming, for example, in 2008 is $57 a barrel, which is obviously much, much lower than the world price. So I think even on that basis they are fiscally sustainable. If in fact we factor in today's price, then the fiscal picture looks very, very good".

Iraq, a founding member of OPEC, does not have an quota from the organization as its oil infrastructure and production capacity are still awaiting restoration to levels before Saddam Hussein's August 1990 invasion of Kuwait. By then, its capacity had exceeded 3m b/d. Now, the Oil Ministry in Baghdad is forecasting a boost in capacity to more than 3m b/d before end-2008 and over 6m b/d several years later.

OPEC in December produced over 32m b/d of crude oil, up from November's 31.65m b/d. Production from OPEC-10 bound by output quotas averaged 27.43m b/d, 460,000 b/d more than in November and 177,000 b/d higher than the group's official 27.253m b/d ceiling which came into effect on Nov. 1.

The bulk of the December output increase was due to higher production from the UAE as key maintenance programmes were brought to a close. UAE production was 2.5m b/d, 350,000 b/d higher than November's 2.15m b/d. Increases of 10,000-40,000 b/d came from Indonesia, Iran, Kuwait, Libya and Saudi Arabia. The OPEC-10 excludes Iraq and new members Angola and Ecuador.

Iraqi production in December was almost 2.5m b/d, despite a sharp fall in exports from November. Angolan output edged up from 1.78m b/d to 1.8m b/d. Ecuador, which left OPEC in the early 1990s but resumed its membership in mid-November 2007, produced about 500,000 b/d. OPEC's production ceiling rose to 29.673m b/d on Jan. 1, 2008.

World Oil Production Could Peak As Demand Falls: Addressing a meeting at the UK House of Commons organised by MPs into peak oil, BP Special Economic Advisor Peter Davies on Jan. 16 said world oil production may peak in the coming years, but it will be because of a decline in demand for petroleum rather than constraint on supply. This came in the wake of remarks from other industry officials who in recent months questioned mainstream supply forecasts, suggesting a peak in oil output may be closer than the industry had previously admitted.

Davies said: "I believe there is a realistic possibility that world oil production will peak within the next generation as a result of peaking demand". A rally in WTI crude oil prices, which rose above $100/b on Jan. 3, is leading to growing interest in peak oil - the view that supply has reached, or will soon reach, a high point and then fall.

BP, the world's third-largest publicly traded oil company by market value, dismisses the view that there is a problem with the amount of oil left in the ground. Statistics complied by BP show the world has proven oil reserves of 1.2 trillion barrels, enough to sustain current output for 40 years.

Rather, Davies said environmental regulations, including efforts to reduce greenhouse gas emissions, could cause consumers to move away from oil. He said: "I think we will run out of demand before we run out of supply. There's a distinct possibility that global oil consumption could peak as a result of climate policies".

The BP economist said there were also concerns whether there was enough investment. Influenced by the trend of resource nationalism, many major oil producing states now ban foreign investment in their oilfields or allow it on terms the oil firms deem uncompetitive.

Davies said: "An imminent peak in oil production is not likely. Valid concerns remain over investment, especially in resource-rich regions". He said it was possible to boost world oil production to 100m b/d, a rate senior executives, such as the CEO of Total, have questioned in recent months.

Davies said: "I believe 100m b/d is achievable. This is achievable in resource terms but it does come down to how much investment is going to take place".