Exclusive: Iraq Declares Force Majeure on Foreign Oilfields Amid Hormuz Crisis

Iraq Declares Force Majeure on Foreign Oilfields Amid Export Disruptions

Iraq has declared force majeure on all oilfields developed by foreign oil companies following military operations in the region that have disrupted navigation through the Strait of Hormuz. This move has halted most of the country’s crude exports, according to three energy officials with direct knowledge of the decision.

The Strait of Hormuz, a critical chokepoint for around 20% of global oil and liquefied natural gas supplies, has been severely affected by unprecedented military activity, as reported by the oil ministry in a letter dated March 17 and seen by Jendela Magazine. Most Iraqi crude exports transit the Strait, and the disruptions have caused storage capacity to reach its limits, the letter said.

International Oil Prices Reach Four-Year High

International oil prices settled at their highest level in nearly four years on Friday, as the three-week-old U.S.-Israeli war with Iran escalated. The situation has created uncertainty in the global market, with supply chain disruptions affecting both production and export capabilities.

“The international partners were unable to nominate tankers to lift crude, preventing exports despite the state oil company SOMO being ready to load shipments,” the letter said. “Based on the situation, the ministry ordered a full shutdown of production at affected concession areas, with no compensation arising from the measure under contract terms.”

The ministry stated that the scale-back of operations would be reviewed periodically depending on regional developments. It also invited companies to urgent talks to agree on essential operations, costs, and staffing under the force majeure conditions.

Impact on Iraq’s Crude Production

Iraq’s Oil Minister Hayan Abdel-Ghani announced that crude production at Basra Oil Company has been cut to 900,000 barrels per day (bpd) from 3.3 million bpd after exports from the country’s southern ports were halted. According to a ministry statement on Friday, the produced quantities are being pumped to operate refineries.

This drop in production and exports is expected to strain Iraq’s already fragile finances, as the state relies on crude sales for nearly all public spending and more than 90% of its income. The economic impact could be significant, especially given the current geopolitical tensions in the region.

Escalation of Regional Conflicts

The U.S.-Israeli war with Iran has already spilled beyond Iran’s borders. Tehran has responded by hitting Israel and Gulf Arab states hosting U.S. military installations. In turn, Israel has launched fresh attacks in Lebanon after the Iran-aligned militia Hezbollah fired across the border.

These escalating conflicts have added to the instability in the region, further complicating efforts to restore normalcy to oil production and export operations. The situation remains fluid, with ongoing military activities and diplomatic efforts to de-escalate tensions.

Ongoing Challenges and Future Outlook

As the conflict continues, the oil industry in Iraq faces significant challenges. The declaration of force majeure has created uncertainty for foreign oil companies operating in the country. While the government has invited discussions to address essential operations, the lack of clarity on compensation and future production plans remains a concern.

The situation highlights the vulnerability of global energy markets to regional conflicts. With the Strait of Hormuz playing a crucial role in global trade, any disruption in this area can have far-reaching consequences. As the world watches closely, the focus will remain on how Iraq and its international partners navigate these challenges.

The coming weeks will be critical in determining the long-term impact of these events on Iraq’s economy and the global oil market. Continued monitoring of the situation will be essential for stakeholders across the industry.