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Iraq's Parliament passed a 2021 budget. The new law preserves a recent currency devaluation, projects a record-setting deficit, and outlines a revised framework for oil and revenue cooperation between Baghdad and Erbil. The budget projects federal oil exports to average 3.25 million barrels per day (bpd) in 2021, including 250,000 bpd from the semi-autonomous Kurdistan Regional Government. For more details, including the budget's headline numbers and KRG oil and revenue provisions, read the full story on Iraq Oil Report.

Nationwide oil exports held steady in March. Combined oil sales from the federal government and the KRG averaged 3.367 million bpd, while revenues surged due to strong global crude prices. The increased revenue is a welcome development for the Iraqi government, whose new budget law authorizes 129.99 trillion Iraqi dinars ($89.65 billion) in expenditures. To fully fund that spending with oil sales, given the export levels projected in the budget, oil prices would need to stay well above $60 per barrel for the year. Iraq's average sale price in March was $63.329 per barrel, the highest monthly average since May 2019. Read the full story on Iraq Oil Report.

A new OPEC quota agreement could give Iraq more leeway to increase production. In a meeting on April 1, the OPEC-plus coalition decided to increase supply gradually beginning in May, with a tentative target of bringing 2 million bpd back onto the market by July — with Saudi Arabia planning to unwind a voluntary cut of 1 million bpd, and the OPEC-plus group splitting another 1 million bpd on a proportional basis. The plan would see Iraq's quota rise from its current level of 4.857 million bpd to 3.905 million bpd in May, 3.954 million bpd in June, and 4.016 million bpd in July, according to an OPEC data table published online by Herman Wang of Platts. The OPEC-plus group expects Iraq to produce well below its quota cap. Along with other countries that exceeded their quotas over the past year, Iraq is expected to make so-called "compensation cuts" through September 2021 in order to make up for past overproduction.

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Energy and Economic News

Iraq is reviving efforts to revamp seminal oil sector legislation. Iraq's Oil Ministry has reviewed a version of a law governing the country's oil and gas sector and intends to submit it to the Cabinet for approval, a necessary step before it is taken up by Iraq's Parliament. Along with an amended version of the national oil company law, which is currently awaiting action in Parliament, the oil and gas law would help fill in the legal foundation of Iraq's oil sector in a way that could alter the balance of power between the federal government and the KRG. For more details on the two laws and their political prospects, read the full story on Iraq Oil Report.

The Oil Ministry has signed a provisional agreement with French company Total for a huge series of Basra energy projects. The deal appears to be a slightly revised version of the Southern Iraq Integrated Project (SIIP), which Iraq was negotiating for years with ExxonMobil and CNPC. In a statement published March 29, the ministry said the "most important" facet of the new deal is the construction of a gas hub at Ratawi for processing a total of 600 million standard cubic feet per day (scf/d) of associated gas, which is generated as a byproduct of crude oil production, from the Ratawi, West Qurna 2, Majnoon, Tuba, and Luhais oil fields. Another part of the deal inolves a mega-project to take and treat seawater from the Basra Gulf and pump it to several Basra oil fields, which need additional water supplies to help increaase oil production. The third aspect of the deal is "a solar energy project" designed to generate 1,000 megawatts of electricity. The fourth piece of the deal would put Total in charge of developing the Ratawi oil field. When the Oil Ministry was negotiating a similar set of deals under the SIIP umbrella, the commercial framework used revenues from the Ratawi field to finance the other aspects of the project. The Oil Ministry statement did not specify how the projects might be financed — a key question, given that Iraq failed to close the SIIP negotiations largely because of disagreements over how the companies would be paid back for their multi-billion-dollar investments.

The U.S. has granted Iraq a 120-day waiver to avoid penalties for buying natural gas and electricity from Iran. The relatively long duration of the latest extension is a signal that the Biden administration is taking a more friendly posture towards Iraq than the often hard-line and transactional diplomacy of the the Trump administration. Read the full story on Iraq Oil Report.

The Sarqala oil field in Iraqi Kurdistan region shut down its roughly 30,000 barrels per day (bpd) of production due to a dispute between politically connected oil trucking companies. The stoppage highlights some of the ways in which rival factions within the Patriotic Union of Kurdistan (PUK) political party, which controls Sulaimaniya province, influence the local oil sector — and the extent to which their internal rivalries have the potential to disrupt day-to-day operations. Read the full story on Iraq Oil Report.

Interview of the Week

Oil Minister Ihsan Ismaael gave an interview to Asharq on March 28, providing new insight into several topics of interest.

Ismaael reiterated Iraq's commitment to OPEC-plus, and previewed his strategy for positioning Iraq as the coalition relaxes quotas in the future. "All of Iraq’s positions in OPEC stem from two policies," Ismaael said. 'The first is to protect Iraq’s rights and to increase its financial and economic stability by achieving balance in oil prices. The second is to deal with international challenges, with market needs, and with the opinions of other producers and consumers." Ismaael said he says he expects “real recovery” in oil markets this fall, and if it seems like a strong trend, Iraq might request an exceptional permission to produce more "based on its special circumstances." Any such request for a relative quota adjustment will not happen "too soon," Ismaael said, and probably not before early 2022.

The Oil Ministry remains committed to paying international oil companies. "All of the pressures on the national economy and the budget have never prevented the Ministry of Oil from paying the companies’ dues," Ismaael said. "In the very tough months for the economy — in July, August, and September of 2020 — Iraq kept paying a portion of the dues of the big companies. When the market recovered at the end of the 2020 and the beginning of 2021, we got started paying off back dues, reducing Iraq’s debts to these companies. Iraq’s dedication to these companies produced a sort of acceptance and good relations. Despite the disruption of their payments because of the reduction of production at the fields they manage, Iraq’s dedication to paying their dues gave them a positive message and created a level of satisfaction on both sides with the relationship."

Ismaael also commented on "a new kind of contract" the Oil Ministry might pursue with Schlumberger to develop gas fields in "western Iraq" — an apparent reference to the Akkas gas field in Anbar province. And, he spoke at length about negotations over a Basra-to-Aqaba export pipeline, the status of the Karbala refinery, and plans to continue expanding nationwide production capacity to a plateau of about 8 million bpd, with a target of reaching that goal before 2030.

More National News

A corrupt cartel is funnelling billions of dollars' worth of customs revenue away from the Iraqi state to fund armed groups and political parties, according to Maya Gebeily, reporting for the AFP. The beneficiaries of the scheme are Iran-linked paramilitary groups who intimidate local officials standing in their way. Gebeily writes that the parallel customs system is so entrenched that revenues are 'parcelled out among rival groups with remarkably little friction." One Iraqi customs worker said it is "worse than a jungle. In a jungle, at least animals eat and get full. These guys are never satisfied.” The network is a result of Iraq’s systemic institutional and political failures stemming from the chaos that followed the 2003 U.S. invasion.

A deal between Baghdad and Erbil designed to bring stability to Sinjar has had little impact on the ground, writes Iraq Oil Report Senior Correspondent Lizzie Porter for the New Humanitarian. The deal was finalized in October 2020 and was supposed to pave the way towards power sharing between the federal government and KRG in Sinjar, without the presence of the paramilitary groups and PKK who currently patrol Sinjar’s streets. But residents, authorities, and activists told Porter that Sinjaris were not widely consulted when the deal was drawn up. Najim al-Jibouri, the governor of Ninewa province, said that "the agreement is good, but truthfully, we must admit that the implementation on the ground is slow." The deal was also meant to allow for the rebuilding of the town and return of IDPs. A Yezidi woman from Sinjar told Porter that "we want a combined Yazidi force here — not Peshmerga or PKK, but one force that can protect us."

The PKK held two Ukrainian arms dealers hostage for three and a half years after a bungled weapons sale, reports Amberin Zaman for Al Monitor. In 2017, two Ukrainian arms dealers promised to deliver MANPADS, weapons, ammunition, sniper rifles, night vision goggles, thermal imagers and frequency jammers to the PKK once they received a million-dollar advance from the group, according to the report. The PKK agreed, but kept two Ukrainian associates of the arms dealers as collateral. The PKK paid the advance but the weapons never arrived, writes Zaman. So began the start of a three-and-a-half-year ordeal for the Ukrainian men, until they were freed by the PKK last December.

Saudi Arabia will channel $3 billion towards developing Iraq’s private sector, according to a statement from the kingdom following Iraqi Prime Minister Mustafa al-Kadhimi’s visit to Riyadh this week. Saudi Crown Prince Mohammed bin Salman met with Kadhimi on Wednesday, during a trip aimed at "boosting co-operation" between Baghdad and the Gulf, according to the National’s Leila Gharagozlou and Mina Aldroubi. The two sides agreed 'to grow cooperation in renewable energy and maintaining stability in the global oil markets," according to a joint statement. The countries also signed an agreement to avoid double taxation. The visit follows the reopening of the Arar land border crossing between the two countries last November.

Covid-19 cases are soaring in Iraq. On March 25, the country recorded 6,513 new cases, up from about 800 per day in February, writes Sofia Barbarani for Al Jazeera. Every bed in the MSF-run covid-19 intensive care clinic inside Baghdad’s Al Kindi hospital was full and the hospital staff were fatigued and overloaded when Al Jazeera visited. A spokesperson for the Health Ministry said that Iraq has increased the number of its intensive care beds equipped with ventilators from 700 to 10,000, but medical workers told Barbarani that the real number was nowhere near this figure. Iraq is currently vaccinating the elderly and front-line workers with the Sinopharm vaccine, donated by China, and the AstraZeneca vaccine, which arrived via the COVAX vaccine distribution alliance. But more vaccines are needed. A second consignment of the Sinopharm vaccine is due to arrive in the coming weeks, according to the Health Ministry.

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.

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