By Aref , Mohammed and Ahmed Rasheed
BAGHDAD, March 20 (Reuters) - Iraq has declared force majeure on all oilfields developed by foreign oil companies after military operations in the region disrupted navigation through the Strait of Hormuz, halting most of the country's crude exports, three energy officials with direct knowledge of the decision said.
Navigation through the Strait of Hormuz — a chokepoint for around 20% of global oil and liquefied natural gas supplies — has been severely affected by unprecedented military activity, the oil ministry said in a letter dated March 17 and seen by Reuters. Most Iraqi crude exports transit the Strait, and the disruptions have caused storage capacity to reach its limits, the letter said.
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 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 said the scale-back would be reviewed periodically depending on regional developments and invited companies to urgent talks to agree on essential operations, costs and staffing under the force majeure conditions.
Iraq's Oil Minister Hayan Abdel-Ghani said 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 were being pumped to operate refineries, the ministry statement said.
The drop in production and exports is set 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 U.S.-Israeli war with Iran has already spilled beyond Iran's borders, as Tehran has responded by hitting Israel and Gulf Arab states hosting U.S. military installations, and Israel has launched fresh attacks in Lebanon after the Iran-aligned militia Hezbollah fired across the border.
(Reporting by Aref Mohammed and Ahmed Rasheed; Writing by Muhammad Al Gebaly; Editing by Louise Heavens and Diane Craft)
