Top Energy News

Federal Iraq’s 2020 oil revenues fell to their lowest annual level in more than a decade. Oil sales totaled just $41.926 billion last year, down from $78.527 billion in 2019, representing a decrease of 47 percent. Oil exports averaged just 2.997 million, down from 3.527 million bpd the previous year. Iraq relies on oil revenue for more than 90 percent of government revenue, meaning that the decrease has eviscerated the state’s ability to pay salaries in the bulging public sector or to allocate money for investment.

The semi-autonomous Kurdistan Regional Government (KRG) also suffered from a sharp drop in oil revenues. In 2019, the KRG said its oil export sales were worth $8.350 billion. In 2020, the KRG has not published revenue or export data, but according to an Iraq Oil Report analysis based on export volumes and historical pricing data, the KRG's annual oil sales were worth about $4.758 billion.

There's reason to hope that 2021 will be better. Global oil prices finished 2020 on the rebound because the increasing availability of coronavirus vaccines is inspiring hopes that economic activity, travel, and energy demand will soon approach pre-pandemic levels. On top of that, in the first OPEC-plus meeting of the year, Saudi Arabia surprised member countries and markets by announcing a unilateral cut of 1 million bpd, which helped lift Brent prices above $55 per barrel for the first time since February 2020. As Herman Wang writes for Platts, the move represents a shift in posture for Saudi — from OPEC enforcer to benefactor — which could give Iraq more leeway with its own quota. That flexibility will likely come in handy. After producing above its quota in November, Iraqi exports ticked higher in December.

The KRG has appointed a new Minister of Natural Resources. Kamal al-Atroshi was sworn into the role leading the semi-autonomous region’s oil and gas sector on Wednesday, after a vote in Kurdistan’s Parliament. The appointment follows an 18-month hiatus without a permanent minister in position, during which time KRG Prime Minister Masrour Barzani took on an acting role. Iraq Oil Report understands that former Natural Resources Minister Ashti Hawrami will remain in place as an advisor to Barzani on energy affairs. Separately, two officials said Ahmed Mufti, who has served as an advisor to the KRG and in the MNR for more than a decade, will be promoted to deputy minister. For more information on Atroshi and the challenges he'll face early in his tenure, read the full story on Iraq Oil Report.

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More Energy and Economic News

The U.S. government has renewed a sanctions waiver that enables Iraq to continue importing gas and electricity from Iran without incurring penalties. The 90-day extension lasts well beyond the inauguration of President-elect Joe Biden on Jan. 20, and is double the length of the previous waiver, granted in late November. Read the full story on Iraq Oil Report.

Meanwhile, Iran has reduced gas supplies to Iraq. Iraq has been paying for the imports by putting money into an escrow account, which Iran has not been able to draw from because of sanctions implications. Without access to that money, Tehran cut its supply from 50 million cubic meters per day to 5 million in mid December, causing shortages and power cuts across large parts of Iraq, reports Khalid al-Ansary for Bloomberg. In previous years, Iranian gas exports to Iraq have also fallen in the winter, when heating and other energy demands intensify and Iran doesn't have as much spare gas to sell. The resulting blackouts in Iraq show the extent to which Iraq still relies on Iran to meet its growing power needs — despite itself flaring billions of cubic meters of associated gas produced every year, which is generated as a byproduct of crude oil production but cannot be processed due to lack of infrastructure.

Iranian Energy Minister Reza Ardakanian visited Baghdad on Dec. 29, and met with the head of Iraq’s Central Bank and other officials. After the visit, Iranian media reported that Iraq is to set up a Euro bank account for some of the payments it owes to Tehran, and the fees would be used to pay for medicines and "basic goods," according to Ardakanian. As of Jan. 5, however, gas imports to Iraq had not resumed, according to Platts. "The reason for power shortages in provinces is the continuing slashing of Iranian gas supplied to power stations," said Electricity Spokesperson Ahmed Musa, as quoted by Platts. "The reason for power shortages in provinces is the continuing slashing of Iranian gas supplied to power stations."

Iraqis are continuing to feel the consequences of the country's financial crisis. Jane Arraf reports for the New York Times from the Jamila wholesale market in Baghdad, where a flour merchant reports that demand has fallen by around 80 percent. The recent devaluation of the Iraqi dinar by nearly 25 percent is also forcing up the price of many ordinary goods, which are imported. Arraf details the multiple factors behind Iraq’s economic collapse, including the unsustainable growth of public sector hiring. The situation is taking its toll on the national mood. “I am like a cigarette,” said one interviewee. “I burn and like a butt I would be thrown away. Do not talk to me about the homeland. We are poor and our homeland is the grave.”

How did things get so bad? The immediate catalyst of Iraq's financial crisis was a drop in oil prices, but the underlying problems come from decades of political dysfunction and catastrophic mismanagement. In a new report for the Atlantic Council, Ahmed Tabaqchali explicates some of the fundamental problems with how Iraq creates its budgets — including the use of multiple accounting standards, the lack of an integrated public financial management system, the use of paper-based records, rigid spending on a bloated public sector, and inter-ministerial inconsistencies. But the overriding cause of Iraq’s persistent financial problems is the so-called muhasasa system, through which political parties have apportioned control of government ministries and their budgets, effectively treating them as partisan fiefdoms from which they can siphon cash. “Instead of leading to an institutional democracy, it has solidified the control of these resources and the entrenchment of vested interests to the detriment of the country,” Tabaqchali writes. He concludes that Iraq can only begin to right the ship by introducing an integrated public financial management system.

Most Iraqi politicians say they support the idea of reform, but many of them oppose policies that would actually bring reform. Majida al-Tamimi, a Sadrist member of Parliament for Baghdad province, said in a new year’s eve interview with al-Iraqiya TV that the 2021 budget is a “horror budget” which has “shocked” Iraqis with its harsh austerity measures. Tamimi emphasized the need for austerity to reduce spiraling government expenses, which she said have been an ongoing problem and are not the fault of Iraqi Prime Minister Mustafa al-Kadhimi’s government. Nonetheless, she insisted, the budget goes too far in trying to impose income taxes on pension income, and in other shock-treatment measures. Tamimi said that Parliament will revise the budget to remove this and to reduce some of the cuts to employee salaries. Tamimi’s remarks suggest that MPs want to have it both ways in the budget debate, criticizing bloated government while also trying to reverse attempts to cut it. This may augur poorly for plans to restructure government spending.

More National News

Iraqis marked the one-year anniversary of the U.S. assassination of Qassim Soleimani and Abu Mahdi al-Muhandis. Thousands of paramilitaries and their supporters gathered in Tahrir Square — a stark contrast to other demonstrations there, where protesters once called for the downfall of Iraq's political class. The crowds chanted anti-American slogans, burned an American flag, and demanded that U.S. troops leave Iraq. “We call upon the government and the Parliament to expel the occupying foreign forces, especially the brutal American forces, the infidels, the immorals, who killed the heroes and leaders of victory,” protestor Muhammad Shubr al-Husseini said, according to Abdulrahman Zeyad and Zeina Karam, reporting for AP.

It might not be high on Donald Trump's growing list of legal worries, but the Iraqi judiciary issued an arrest warrant this week for the outgoing U.S. president, charging him with premeditated murder for ordering the drone strike that killed Soleimani and Muhandis, according to AP. The warrant was issued by a judge in Baghdad’s investigative court tasked with probing the drone strike, the court’s media office said. If he were actually arrested, tried, and convicted, Trump would face the death penalty. "It is unlikely to be carried out," AP noted, "but symbolic in the waning days of Trump’s presidency."

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