Top Energy Stories

Iraq's nationwide oil exports fell by about 134,000 barrels per day (bpd) in November, as Iraq appeared to cut back toward its OPEC quota obligations after a big output increase in October. The federal Oil Ministry said it averaged 2.709 million bpd in exports for the month, down from 2.876 million bpd in October. The semi-autonomous Kurdistan Regional Government (KRG) posted 435,000 bpd in independent oil sales, according to an industry official, up from 401,000 bpd the previous month. Read the full story on Iraq Oil Report.

"OPEC's 'Game of Thrones' has finished. I saw the last bit of it tonight," said Saudi Energy Minister Abdulaziz bin Salman in a press conference Thursday following a closely watched meeting of the OPEC-plus coalition. The meeting had been scheduled for Tuesday, but was delayed two days because member countries disagreed about whether the group should continue its current level of cuts or follow a previously agreed schedule to bring some production back online. The new agreement is a compromise: the OPEC-plus group will raise its collective production by 500,000 bpd in January — and after that, the drama will begin anew. Through the first quarter of 2021, ministers will meet on a month by month basis to decide whether quotas will be loosened further or re-tightened. They will also keep a close eye on quota compliance, with extra scrutiny on Iraq as OPEC's second-largest producer.

The new quota agreement doesn't give Iraq much new leeway. According to Herman Wang, reporting for Platts, an internal OPEC document has clarified the specific targets for each country. Iraq's expectation for January is 3.857 million bpd, an increase of 53,000 bpd from its August-to-December quota. The OPEC-plus allies also agreed that so-called "compensation cuts" would continue into the new year, meaning that Iraq will still be expected to produce below its nominal quota to make up for past over-production. Iraqi output in August, September, and October was near or below the country's quota — but not low enough to satisfy compensation cut expectations.

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Kurdistan and the National Budget

Thousands of demonstrators took to the streets of Sulaimaniya this week to criticize the Kurdistan Regional Government, which doesn't have enough cash to pay salaries. The KRG's financial crisis is a product of economic mismanagement, low oil prices, and political disputes with the Iraqi federal government — including renewed conflict over monthly budget transfers. In a letter to Iraqi Prime Minister Mustafa al-Kadhimi dated Nov. 27, 2021, which was published by Al-Sumaria, KRG Prime Minister Masrour Barzani claimed that Baghdad has failed to transmit four monthly payments of 320 billion Iraqi dinars ($271 million), and advised Kadhimi that "it is necessary at the present time to instruct the federal Finance Ministry to release the region's funds." The letter was not successful in prompting any payment, largely because the political climate in Baghdad makes it almost impossible for Kadhimi to act unilaterally. Now there is growing awareness within Barzani's Kurdistan Democratic Party (KDP) that, to get a financial lifeline from Baghdad, Kurdistan's leaders will probably need to work with a negotiating committee of federal MPs representing a broader range of political parties. Such talks are becoming increasingly urgent as civil unrest rises in Sulaimaniya and other cities in Kurdistan. Read the full story on Iraq Oil Report.

The negotiations over federal financial transfers are likely tied to talks on the 2021 budget law — and that could take a while. According to Hassan Khallati, a Sadrist MP from Basra, the federal Parliament is not likely to pass a 2021 budget before the new year. "The Parliament has insisted that the budget be sent with enough time to allow it to discuss its provisions... which requires three successive sessions, which will take about six weeks,” Khallati said in a Dec. 1 interview with the state-backed Iraqiya TV.

Budget deliberations are likely to be complicated by not only Baghdad-Erbil issues but also economic reform measures. In past negotiations over prior national budget laws, the easiest way for legislators to resolve their conflicting priorities has been to increase spending across the board. But in an era of severe revenue shortages, those short-sighted solutions have become not just unwise but impossible. This creates a difficult contradiction for MPs who realize the need for an austerity budget but feel beholden to constituents who depend on government jobs for their livelihood. "What we want is to see a reduction of state expenses, government expenses," Khallati said, "but also, the most important thing is securing the salaries of government employees, which are the people’s principle livelihood and the main issue." It is impossible to achieve both of those goals. In the first three quarters of 2020, public-sector salaries, pensions, and social welfare made up 80 percent of government spending, according to Finance Ministry data. Parliament cannot cut spending without making unpopular cuts to payroll. Such a budget probably won't be passed easily or quickly.

A breakthrough in Baghdad-Erbil relations could be... the status quo? In a paper published by Chatham House, Raad Alkadiri observes that, even if the Iraqi Constitution has not been fully implemented, semi-functional power-sharing mechanisms have nonetheless evolved over the past 17 years. And one good starting point for removing some of the volatility and political heat from "the federalism question" in the long term "would be to codify the ad hoc — but at this point, durable — status-quo arrangements that have emerged as a result of the impasse over power-sharing, and using them as the foundations for a robust power-sharing system." Such efforts could potentially begin with the 2021 budget law. "The basis for confidence-building first steps lies in a variation of the export-for-revenue formula that has been discussed in recent budgets," Alkadiri writes, "especially as any enduring mechanism will require deals that go to the heart of the federalism dispute: revenue-sharing; defining legal competent authority; hydrocarbon sector management; and, territorial control."

The Geopolitical Equation

The Trump administration has ordered a withdrawal of some personnel from the U.S. Embassy in Baghdad. According to Lousia Loveluck, John Hudson, and Carol Morello, reporting for the Washington Post, the drawdown is a "de-risking," which comes weeks before the Jan. 3 anniversary of the U.S. drone strike that killed Qassim Soleimani and Abu Mahdi al-Mohandis at Baghdad International Airport. While the move appears to be precautionary, it has also prompted worries that the U.S. could be laying the groundwork for military strikes on Iranian interests before the Trump administration leaves power in January, by removing American personnel who would be likely targets of retaliatory counter-attacks. Two high-ranking Iranian officials have recently been assassinated, although it is not clear whether or to what extent the U.S. might have been involved: on Nov. 27, Iran's top nuclear scientist, Mohsen Fakhrizadeh, was killed in Iran; and two days later, according to Reuters, an airstrike killed a commander in Iran's Revolutionary Guards on the Iraq-Syria border.

"I want to let our Iraqi friends know that our commitment to Iraq and the Iraqi people is as strong as ever," U.S. Ambassador Matthew Tueller said in a video message, seated in front of a Christmas tree and pausing to drink from an Operation Inherent Resolve coffee mug. "I will continue to carry out my normal duties from the Embassy. I will do so with the support of a core team of American diplomats and U.S. advisors to the Iraqi military." Ultimately, however, the extent of U.S. engagement in Iraq will depend on the incoming Biden administration — and the stakes are high. Reporting for the Associated Press, Samya Kullab writes that "senior coalition and Iraqi officials say Iraqi forces will continue to rely on U.S. air cover, reconnaissance and intelligence gathering for the foreseeable future." Those capabilities are needed in counter-insurgency operations to contain remnants of the self-proclaimed Islamic State (IS) militant group. And then there's Iran to consider: "a wider American withdrawal would also enable Iran to deepen its influence."

What is "Iranian influence," exactly? Reporting for Reuters, John Davison provides a set of vivid examples by investigating Iran's investments, worth hundreds of millions of dollars, in the holy cities of Karbala and Najaf. The projects, centered on religious shrines, give Iran a foothold in a major sector of Iraq's economy. "Religious tourism is worth billions of dollars a year in Iraq, the second-largest earner of revenue for the country after the oil sector," Davison writes. Moreover, because many of the Iranian companies working on the shrines have ties to Iran's Revolutionary Guards, the projects give Iranian agents plenty of occasions to build networks among Iraqi Shia. Iran's "involvement in Iraq’s Shi’ite shrines is a long game. It brings an enduring presence in Shi’ite centers of power, where Iran hopes to influence the succession of Iraq’s most powerful Shi’ite cleric, [Grand Ayatollah Ali al-]Sistani. The Guards are regularly in Najaf, where Sistani is based."

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