Top Energy News

Baghdad is offering forward oil sales for the first time. The move, which could provide a cash injection of about $1.7 billion, is part of the Iraqi government's efforts to respond to a severe financial crisis. Under the proposal outlined by the State Oil Marketing Organization (SOMO), a buyer would sign up for a five-year agreement, from Jan. 1, 2021 to Dec. 31, 2025, to purchase 4 million barrels per month of crude oil from Basra — about 5 percent of current volumes sold through the Basra Gulf. To secure the deal, the buyer would make a downpayment on one year's worth of oil. For more details on the proposal, read the full story on Iraq Oil Report.

Iraq's cash crunch continues to pose a dilemma for its participation in OPEC-plus. Massive supply cuts have supported global crude prices, helping Iraq's oil-dependent economy. But the government is also desperate for revenue, making it difficult to keep more than 1 million barrels per day (bpd) of production shut in month after month. The OPEC-plus group, led by Saudi Arabia and Russia, is meeting on Nov. 30 and Dec. 1 to decide whether members will be allowed to ease off some production cuts in January according to a previously established schedule, or whether current quotas will be extended into 2021. "An extension of current output cuts is still the likeliest scenario," writes Herman Wang, reporting for Platts, "but some hard conversations over the future of the deal — and the alliance itself — could complicate a decision."

Iraq is sure to raise at least one line of argument with its OPEC-plus allies. In remarks to a Chatham House conference this week, Deputy Prime Minister and Finance Minister Ali Allawi summarized his country's position bluntly. "We have reached the limit of our ability and willingness to accept a policy of one-size-fits-all," Allawi said. OPEC's method of calculating quota obligations is not equitable, he argued, because taking a flat percentage off the crude output of a fragile, oil-dependent economy is much more damaging than taking the same percentage of production out of a more diversified economy with a financial buffer. The mechanism for calculating cuts "has to be more nuanced and it has to be related to the per-capita income of people, the presence of sovereign wealth funds, none of which we have," Allawi said.

ExxonMobil might be looking to leave West Qurna 1. According to Bloomberg, the only American operator of an oil field in southern Iraq is exploring a deal to sell its 32.7 percent stake to two Chinese state-owned companies, the China National Petroleum Corp. (CNPC) and the China National Offshore Oil Company (CNOOC). Exxon has already reduced its exposure in southern Iraq once, in 2013, when it sold parts of its then-60 percent share in West Qurna 1 to PetroChina and Pertamina. In recent years, as tensions between Iran and the U.S. have played out violently in Iraq, Exxon has minimized the presence of expat staff in Basra, causing consternation in the Oil Ministry and contributing to the deterioration of negotiations over the Southern Iraq Integrated Project (SIIP). Exxon's exploratory talks with potential buyers come as the company is looking to divest from $15 billion worth of projects by 2021 as part of a strategy to reallocate resources into a handful of mega-projects. Like many international oil companies — including Shell, which divested from both West Qurna 1 and the Majnoon field in 2018 — Exxon appears to see limited upside in Iraq's tough contract terms and operating environment.

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The Geopolitical Equation

Iranian leaders are vowing revenge for the assassination of their top nuclear scientist. Mohsen Fakhrizadeh was killed on Friday in an apparent assassination in northern Iran, according to multiple Iranian news agencies. “He was their senior-most nuclear scientist and was believed to be responsible for Iran’s covert nuclear program,” said Michael P. Mulroy, the Pentagon's former top Middle East policy official, in an email to the New York Times. “He was also a senior officer in the Islamic Revolutionary Guard Corps, and that will magnify Iran’s desire to respond by force.” The perpetrators of the attack "will face severe revenge," said Mohammed Bagheri, the chief of staff of Iran's armed forces. In a statement posted to Twitter, Iranian Foreign Minister Javad Zarif said there were "serious indications of Israeli role" in the attack. Iran did not immediately accuse the U.S. of involvement in the assassination, but the attack has the potential to raise regional tensions during a potentially volatile period when outgoing U.S. President Donald Trump has asked for military options to attack Iran before President-elect Joe Biden takes office in January.

The assassination of Fakhrizadeh could embolden hard-liners in Iraq. Even though Gen. Esmail Ghaani, the head of Iran's Quds Force, has asked allied armed groups in Iraq not to launch attacks on the U.S. in Iraq during the last days of the Trump administration, some Iraqi paramilitary leaders are not fully committing to a ceasefire. “We have the absolute right to confront the foreign forces militarily," said Qais al-Khazali, the head of Asaib Ahl al-Haq, in a Nov. 19 interiew with the state-run Iraqiya TV. "The manner and tactics used depends on developments and conditions." Khazali said that his and other “resistance” factions had agreed to stop attacks for now, in part because they think Trump might withdraw more forces from Iraq in his final days in office. But Khazali also said he has low expectations for the incoming Biden administration, and expressed undiminished determination to avenge the deaths of Abu Mahdi al-Muhandis and Qassim Soleimani, saying that this vengeance is as much an Iraqi issue as an Iranian one, since Soleimani was “our guest” when he was killed by a U.S. drone strike in January.

“We're going to get it just right in Iraq,” said outgoing U.S. Secretary of State Mike Pompeo. In an interview for The National, Mina al-Oraibi voiced concerns that Iran might feel emboldened if Washington continues with its plans to withdraw troops from Iraq, prompting Pompeo to give a rose-tinted view of Iraqi public opinion toward the U.S.: "They see the freedom of the United States. They want to be alongside of us. I've watched these protests in Iraq... they're not burning American flags. They're burning Iranian flags. This is because the United States is engaged." The Nov. 22 interview came days after Pompeo approved a new 45-day sanctions waiver that allows Iraq to continue importing gas and electricity from Iran. He said the U.S had been expecting more from Iraq in terms of diversifying its energy supply. “We've made clear there were higher expectations for progress with Iraqis.... We said, 'Okay, we'll give you this waiver, but you must invest, you must begin to create systems and processes so that you will become more free, more independent from Iranian energy.'” Pompeo also said in the interview that the Trump administration would not rule out military action against Iran in its final days.

How will the Biden administration approach Iraq? Many Iraqi leaders have voiced cautious hope that, despite Biden's history of miscalculations and policy controversies in Iraq, he will at least try to de-escalate U.S. conflicts with Iran. But the assassination of Fakhrizadeh has the potential to make diplomatic re-engagement more difficult. And Biden's picks for top foreign-policy positions — including Antony Blinken for Secretary of State and Jake Sullivan for National Security Adviser — have their own fraught histories with Iraq, having been at the forefront of some of the Obama administration's worst missteps. In now-infamous remarks to the Center for American Progress in March 2012, Blinken showed his blindness to the near-fatal problems in Iraq's power structures, which the Bush administration had helped create, and which the Obama administration had not sufficiently addressed before withdrawing military forces in 2011. “Iraq today is less violent, more democratic and more prosperous — and the United States more deeply engaged there — than at any time in recent history,” Blinken said.

National News

Iraq's new elections law offers some hope to reformers. The legislation defines a new framework for early parliamentary elections planned for June 6, 2021, answering one key demand of protestors who have been demonstrating in Baghdad and across southern Iraq since October 2019. The new law puts an end to candidates running on lists, a format that previously reinforced the patronage structure of Iraqi politics by giving power brokers the control to hand out the parliamentary seats earned by their party. Under the new system, the winners are simply the individuals who get the most votes. Still, significant political and technical challenges remain before a vote can be held — and political observers of all stripes are confident the major parties will find ways to work around the system to retain their power. For more details, read the full story on Iraq Oil Report.

Electoral reform and an early vote will not satisfy protesters. Writing for Al Jazeera, Hayder al-Shakeri and Taif Alkhudary say that many protesters believe the real pace of political change is slower than it may seem. And there is still plenty to protest against: dire economic conditions, poor security, militia infiltration of the political establishment, and little accountability for those responsible for previous violence against demonstrators. Shakeri and Alkhudary admonish Prime Minister Mustafa al-Kadhimi for hailing a return to “normalcy” when protest tents were cleared from Baghdad’s Tahrir Square earlier this year. “But one has to wonder what ‘normalcy’ the prime minister sees in the current state of affairs,” they write. “The situation in Iraq was far from normal before the protests broke out, with the country facing multiple interlinked crises.” Ultimately, their prediction is that widespread protests will continue across Iraq next year.

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