Kadhimi Comes to Washington

Energy deals were at the top of the agenda in Washington this week, as Prime Minister Mustafa al-Kadhimi made his first official visit to the White House. Iraq is dangling the prospect of several projects with U.S. companies, including a new memorandum of understanding (MoU) with Chevron for a potential oil exploration joint venture with two Iraqi state companies, negotiations with Honeywell for a gas processing hub, and multiple electricity projects with GE. While the basic outlines of the oil and gas deals have only been vaguely defined, and there is no guarantee the MoUs signed this week will lead to binding contracts, Kadhimi's willingness to open dialogues with American companies helped to secure an audience with U.S. President Donald Trump and set a positive tone for the state visit. One key item on Iraq's agenda was to lobby for an extension of sanctions waivers, which enable the country to import gas and electricity from Iran without triggering crippling penalties. The U.S. government has previously said Iraq can only qualify for further waiver extensions by taking steps toward ending its energy dependence on Iran — ideally in partnership with American companies. Read Iraq Oil Report's full story here.

Iraqi Prime Minister Mustafa al-Kadhimi and U.S. President Donald Trump, along with their respective delegations, meet at the White House on Aug. 20, 2020. (SHEALAH CRAIGHEAD/White House)

The United States has a golden opportunity to re-frame its Iraq policy, according to Dana Stroul and Bilal Wahab of the Washington Institute for Near East Policy. The Trump administration has often treated Iraq primarily as a theater for its rivalry with Iran. But now more than ever, U.S. foreign policy goals are aligned with the will of an Iraqi people who have taken to the streets decrying a dysfunctional economy and failing government services, and demanding an overhaul of the political system. Stroul and Wahab argue that Kadhimi is a credible vessel for this agenda. “Washington should not expect Kadhimi to deliver transformational change of systemic weaknesses that were decades in the making,” they write. “But policymakers should still assess his political will to chart a new path for the country, offering him the requisite support while tempering expectations.”

One dramatic illustration of Kadhimi's weakness is his total inability to establish accountability in response to recent political assassinations. More than a month after the murder of Husham al-Hashimi, his killers — who were caught on camera — have not been arrested. Assured of their impunity, corrupt actors are now continuing to kill Iraqis who dare to criticize a broken system. The latest casualty was Dr. Reham Yacoub, a Basrawi woman who gained a large social media following as an activist calling out government corruption and dysfunction. She was shot dead on Wednesday by gunmen on a motorbike, just a week after assassins killed another activist, Tahseen Osama. “The situation is tragic," an activist in Basra told Iraq Oil Report. "We are losing a friend every day, and our turn will come." In response to the assassinations, Kadhimi has ordered a reshuffle of security chiefs in Basra. Senior members of his administration also visited Basra this week — including Interior Minister Othman al-Ghanimi and National Security Adviser Abdul Ghani al-Assadi — promising a full investigation into the deaths. Such promises were also made after the killing of Hashimi.

Interview of the Week

The ecosystem of corruption that produces political assassinations also makes foreign investment all but impossible. In an interview with Zagros TV, Murad al-Hilfi, a prominent Iraqi business leader, described Basra's economic climate in stark terms:

If we don't get read of the failing leaders and the corrupt ones, we won't be able to move even a single step forward.... Right now, local investors from Basra can't hack it. So for foreign investors, it's impossible. Given this security situation, given these tribal problems, given this red tape and this corruption — we have to get rid of the corrupt leaders and the failing ones if we want to enable investment.

Hilfi also said that a failure to prosecute officials accused of corruption creates a sense of impunity and encourages further corruption. Hilfi in particular pointed to the case of Majid al-Nasrawi, a former Basra governor who fled the country amid an investigation into alleged corruption in 2017.

The governor fled with billions and hasn't faced accountability. I believe he is now in a European country, living normally. This creates an incentive. It makes an official think when he gets into office that there's no accountability. You can exploit your power, exploit your authority, steal money, and there's no accountability. So it just keeps on going and going.

Top Energy and Economic Stories

After three months of deadlock, Baghdad and Erbil have reached a revenue-sharing agreement. In the past, such negotiations centered on Kurdistan's oil exports. This time, the two sides reached a temporary deal by focusing on border crossings. Baghdad will transfer 320 billion Iraqi dinars ($270 million) per month, in exchange for half of the customs revenues collected by the Kurdistan region. This arrangement is expected to last for only a matter of months. Thorny disputes over revenue-sharing, oil authority, and territorial control will come up again when political leaders begin negotiating a 2021 budget law. Read the full story on Iraq Oil Report.

Iraq continues to cut oil production. Monthly output fell by nearly 200,000 barrels per day (bpd) from June to July, as the country continues to try to comply with an OPEC-plus quota to shore up global prices in the wake of the coronavirus pandemic. Nationwide production averaged a combined 3.73 million bpd in July, down from 3.91 million the previous month, according to an Iraq Oil Report analysis based on data from every producing field controlled by both the federal government and the semi-autonomous Kurdistan Regional Government (KRG). The Oil Ministry has promised further cuts, to compensate for under-complying with its quota in May, June, and July. For more details, read the full story on Iraq Oil Report.

Do you love raw data? Look under the hood of Iraq Oil Report's nationwide production estimates by subscribing to the Iraq Oil and Financial Dataset. We track hundreds of data points on a monthly basis: not only production at every oil field, but also exports and pipeline flows, electricity, government expenditures, and more. Subscribers get it all in one, big spreadsheet. Click here for a free sample.

This bureaucratic turf war could have big implications for Iraq's oil exports: the state-run Basra Oil Company (BOC), which answers to the Oil Ministry, has attempted to take over logistics operations of Iraq’s offshore oil facilities in the Basra Gulf from the General Company for Ports of Iraq (GCPI), which reports to the Ministry of Transportation. Company officials have asked the Iraqi Cabinet to step in to resolve the dispute. For more details, read the full story on Iraq Oil Report.

Director General of the GCPI Farhan Mohsen al-Fartosi spoke with Iraq Oil Report about the controversy. He also detailed some of the security upgrades made to the Um Qasr terminals, and talked about efforts to ensure Iraqi ports are safe from the kinds of dangerous materials that caused a massive explosion in Beirut. Read his Q&A with Iraq Oil Report here.

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