Energy and Economic News

Iraqi Oil Minister Ihsan Ismaael is taking a hardline stance on a long-standing arbitration case against Turkey. According to members of Parliament briefed by Ismaael, the minister said Iraq has asked the International Chamber of Commerce's International Court of Arbitration for $26 billion in damages, based on allegations that Turkey has violated the Iraq-Turkey Pipeline (ITP) treaty by facilitating crude exports from the semi-autonomous Kurdistan Regional Government (KRG), in defiance of Baghdad’s objections. A ruling is expected within months. Turkey is eager to reach a negotiated settlement before then, and Ismaael has reportedly set an April deadline for the talks. Baghdad could potentially end up regaining control of Iraqi exports from Turkey’s Ceyhan port. If so, the KRG would no longer have the ability to sell oil without Baghdad’s permission — exports which currently provide Erbil’s single largest revenue stream. Read the full story on Iraq Oil Report.

The KRG is increasingly dependent on Baghdad for its financial health. Even if Erbil retains control of its exports via Turkey, those oil sales are not likely to cover the regional government's expenses. The financial picture has crystallized as the KRG prepares an annual budget for the first time since 2014 — part of an effort to improve the regional government's financial management, which has historically been characterized by opaque and ad hoc decision making shaped by unpredictable revenue flows. The regional government's revenue is so contingent on transfers from Baghdad that the KRG is drafting two discrete versions of its budget: one that anticipates federal funding, and one that assumes the KRG will have to rely solely on its own revenues. Read the full story on Iraq Oil Report.

Iraq is in talks with the IMF to secure a $6 billion loan. Finance Minister Ali Allawi told Bloomberg’s Khalid al-Ansary that Iraq can apply for $2 billion in quick, covid-related financing from the IMF once a spending plan is approved, and then an additional $4 billion through another IMF mechanism linked to government reforms. The requested loan won’t plug the forecasted $49 billion budget deficit, but it could slow the rate at which the government needs to borrow from the Central Bank of Iraq's foreign currency reserves. Iraq's participation in IMF-backed reform programs could also give international investors more confidence when considering whether to finance projects or lend money to the state. But for now, Iraq is likely to issue domestic rather than international bonds to raise another $5 billion. “International loans are somewhat expensive," Allawi told Bloomberg. "I don’t know if there’s appetite to buy Iraqi bonds. Going back to these markets now is a bit difficult." Iraq's financial crisis is so severe that the Central Bank recently devalued the dinar, and the Oil Ministry struck a deal with a Chinese company to pay in advance for a year's worth of oil sales.

How To Transport Personnel in a Pandemic

A message from FronteraSky:

IOCs and oil service companies need smart, integrated transportation and logistics support now more than ever. FronteraSky has years of experience operating in Iraq, offering a full range of transportation services:

• immigration services;
• work permits, blood tests, security clearances;
• arranging private air transport and charter flights;
• managing every step of covid-19 compliance, from safe
  quarantine to testing;
• medical evacuations.

Whether you are flying to Baghdad, Erbil, Basra, or military installations in Iraq, FronteraSky will make transportation efficient, comfortable, and safe. To learn more about how they can help you, e-mail them at info@fronterasky.com.

And to hear directly from FronteraSky President Carlos Barbosa, read his interview with Iraq Oil Report.

More National News

Iraq is facing a possible covid-19 resurgence. Public health officials in Iraq are waging a losing battle trying to persuade people to wear masks and social distance to prevent the spread of Covid-19, writes Jane Arraf for the New York Times. The report also points out that poor infrastructure and corruption are seriously harming the fight against the virus. Iraq’s reported infection rate is falling steadily — to fewer than 800 cases per day in January, down from 3,000 new cases per day in November. But Iraq is experiencing “the calm before the storm,” according to Ali Mokdad, director of the Middle East Initiatives at the University of Washington’s Institute of Health Metrics and Evaluation. He told the Times that “there is a potential wave coming on unless Iraqis are vaccinated or taking social distancing measures.” Mokdad said Iraq’s young median age could explain the lower death toll, but other experts say the real number of covid-19 cases in Iraq could be far higher than the official figure. An epidemiology professor at the University of Baghdad, Dr. Riyadh Lafta, said he expected another severe wave to hit by March or April.

Pope Francis is expected to meet with Grand Ayatollah Ali al-Sistani in Najaf. Nicole Winfield and Samya Kullab report for AP that the visit is set for March 6, in what will be the first-ever papal trip to Iraq. Chaldean patriarch Cardinal Louis Raphael Sako told the AP that Christians in Iraq expect the pope’s message to bring “comfort and hope.” Francis is also scheduled to hold an interfaith meeting on the same day in the ancient city of Ur, the birthplace of the prophet Abraham, said Sako.

Dysfunctional Federalism

Iraq has failed to establish a functional framework for distributing power within its ostensibly federal system. That is the argument of a new paper by Sajad Jiyad and Ali Al-Mawlawi, writing for the LSE’s Middle East Center. When the Iraqi Parliament passed a revised Provincial Powers Law in 2015, it promised to push an unprecedented level of state authority and government funding from Baghdad to Iraq's 18 governorates. But the law has been implemented only partially — and poorly. Officials interviewed by the authors "struggle to cite any marked improvements to local governance; some argued that devolving powers to local entities has compounded mismanagement and corruption." There is also widespread confusion about how the lines of authority are drawn, in law and in practice. And then there's the issue of corruption. The push toward decentralization was initially born of a populist urge to move away from the notorious mismanagement and theft that is endemic to Baghdad's bureaucracy. But the provincial governments are no better, and sometimes much worse. The authors say oversight on the local level is "virtually absent." One solution could involve further electoral reforms. At the federal level, the authors say the Council of Ministers needs to “exhibit greater assertiveness in resolving disputes” rather than allowing them to play out in the courts.

The single biggest dispute over the shape of Iraqi federalism centers on the Kurdistan region. The latest flashpoint of controversy is the national budget, which was approved by the Cabinet earlier this year and is now being debated by Parliament. That process is getting ugly. In an interview with Al-Sharqiya on Jan. 24, Rowsch Shaways — a former deputy prime minister of Iraq and a senior figure in the KRG's ruling Kurdistan Democratic Party (KDP) — blamed Arab politicians for scuttling efforts to seek a budget compromise. KRG leaders have argued for more than a decade that Iraq's constitution gives extensive leeway to regional and provincial authorities to set oil policy, sign contracts, and even sell oil independently from Baghdad. Now that some legislators are demanding the KRG hand over its oil production to be sold by the federal government's State Oil Marketing Organization (SOMO), Shaways accuses them of trying to walk back the constitution’s formulas and return to the fully centralized system of the Saddam era. Shaways's arguments are unlikely to persuade partisans in Baghdad, but they were probably intended primarily for consumption in the Kurdistan region. If the KRG fails to secure federal financial transfers, it will likely have to impose further austerity measures. And if that happens, KDP leaders want Kurdish citizens to blame Arab chauvinism rather than the KDP.

The issue of federalism is also a live wire in Anbar province. Construction projects in Anbar funded by private investors are creating jobs in the province, writes Al Jazeera’s Simona Foltyn, but analysts say that calls to cut red tape and increase autonomous investments could embolden corruption. Investment projects in Anbar worth $2 billion are mainly focused on construction and housing, according to Al Jazeera. Local officials want to deal with investors directly instead of relying on the federal government to approve investment licenses for projects above $250 million, writes Foltyn. But Mawlawi, the co-author of the recent LSE report on Iraqi federalism, told Al Jazeera that decentralization without reforms, transparency, and accountability "will just end up reinforcing corruption and red tape at the local level without actually improving the business environment."

Oil Companies Face New Regulatory Hurdles

A message from New Frontiers:

International oil companies, oil service companies, and other contractors in Iraq face a major new compliance challenge. The oil sector has long enjoyed a de facto exemption from some Iraqi regulations, including Ministry of Labor requirements associated with social security and work permits. But in September 2020, the government started enforcing the rules on foreign oil contractors. If they don't comply, companies risk severe consequences — including payment delays, visa problems, and exclusion from tenders.

To learn more about these latest challenges, Iraq Oil Report spoke with Steve Rahola and Mustafa al-Janabi, two key leaders of New Frontiers Business Consulting. For more than a decade, New Frontiers — which is also known by its Kurdish-language name, Asteki Nwe — has been on the ground navigating Iraq's bureaucracy, gaining the experience and relationships necessary to help foreign companies. Read the full interview here.

Sign up

Sign up here to receive This Week in Iraq in your inbox.