Top Energy Stories

Iraq’s nationwide oil exports fell in July to their lowest monthly average since 2015 — just 3.192 million bpd. The country has drastically reduced crude output as it tries to comply with a quota set in April by the OPEC-plus group of oil-producing countries to shore up global oil prices in the wake of the coronavirus pandemic. For more on the cuts and their impact on Iraqi finances, read the full story.

Shell is returning to Basra. The company evacuated its expatriate staff on May 18 after volatile protests sparked by salary payment disputes. The incident highlighted cracks in the Basra Gas Company consortium, which consists of Iraq's state-run South Gas Company (SGC), Shell, and Mitsubishi. The parties appear to be on a path toward reconciliation, which includes replacing the leaders representing both Shell and SGC in the consortium. Expat staff are expected to return to Basra after the Eid al-Adha holiday. Read the full story here.

More details are emerging around the U.S. company Delta Crescent and its controversial oil contract in northeast Syria. Last week, Amberin Zaman of Al-Monitor reported the Kurdish-led, autonomous administration in Syria had signed a deal with the previously unknown American company, which recently received a key license from Treasury Department's Office of Foreign Asset Control (OFAC). This newsletter was the first to reveal the names of the company leaders, who have political connections in the Trump administration. Now, Zaman has learned more: the 25-year contract grants development rights to the same assets the Assad regime had formerly contracted to another American company, Gulfsands Petroleum. That deal fell apart because of international sanctions against the Syrian regime. The founder and former CEO of Gulfsands? John Dorrier, who is now playing the other side of the Syrian civil war as one of the principals of Delta Crescent.

Secretary of State Mike Pompeo appears to be one key champion of the deal in Washington. "It took a little longer... than we had hoped, and now we're in implementation," Pompeo said in a July 30 Senate hearing, when questioned by Sen. Lindsey Graham, who has received at least one campaign contribution from Dorrier, and who told Politico he was scheduled to receive a briefing this week from Delta Crescent. "I think this company’s going to improve the viability of the northern oil fields to make them more productive,” Graham said to Politico. “Conceptually it makes sense that we should, instead of just writing checks, help people help themselves.”

But the deal stinks of cronyism, argues Zack Kopplin of the Government Accountability Project, in an article for The New Republic. "Syria’s Kurds didn’t have any real choice in partners," Kopplin writes. "Companies involved in the Syrian oil business risk punishing sanctions that would cut them off from the U.S. financial system." Four companies applied for OFAC licenses, Kopplin reports, but only Delta Crescent was chosen. This raises questions over whether leaders in the Trump administration are misusing their authority over sanctions exemptions to funnel overseas business to their friends. At a minimum, it is clear that the autonomous administration in northern Syria could not possibly conduct competitive bidding. If Delta Crescent is going to help America's Syrian allies help themselves, the U.S. government appears to be minimizing the Syrians' leverage to demand fair terms.

Rumaila is celebrating 10 years. Iraq's most prolific oil field has been producing for decades, but the Rumaila Operating Organization (ROO) — a joint venture of BP, PetroChina, and the Basra Oil Company — has been managing the field for a decade now, raising production by 40 percent during that time. In an interview with Iraq Oil Report, Hussein Abdul-Kadhim Hussein, the director of ROO, spoke about how budget constraints and OPEC quotas are affecting the project's outlook.

National News

Iraqi Prime Minister Mustafa al-Kadhimi is going to Washington. The next phase of a renewed U.S.-Iraq strategic dialogue will take place in person, including a White House meeting with President Donald Trump scheduled for Aug. 20, according one Iraqi and one U.S. government official familiar with the details. The Trump administration has been slow to set a date for the meeting, which many had expected to happen earlier in the summer. One factor that may have contributed to the renewed momentum is a prospective energy deal involving U.S. firm Honeywell.

Iraq is feeling the political aftershocks from a massive explosion in Beirut. The blast killed at least 145 people and injured some 5,000 more. Hundreds of thousands of people, who were already suffering from a severe financial crisis and the coronavirus pandemic, have now seen their homes and businesses damaged or destroyed. Preliminary assessments suggest the blast was caused at least in part by negligence: thousands of tons of ammonium nitrate were left in a storage warehouse for years, despite the obvious dangers associated with such a large quantity of explosive material. The disaster highlights the human costs of corruption. When key government jobs are awarded based on political connections and loyalty rather than competence, the government fails — and ordinary citizens pay the price. Lebanon's tragedy resonates with Iraqis who have long been protesting against a political class that has consistently failed to generate economic opportunity or police its own corruption and self-dealing.

Iraqi leaders have scrambled to demonstrate their responsiveness to the crisis. Oil Minister Ihsan Ismaael led a delegation to Lebanon this week, promising to provide fuel and medical supplies. Minister of Transportation Nasir Hussein Al-Shibly ordered Iraq's state-run ports company to inspect all of Basra's ports to ensure there are no warehouses at risk of exploding. But Iraqi leaders have not proposed any serious measures that would fix the broken system on which their own power is built. Kadhimi has called for early elections, but that is less than a half-measure: many protesters say real reform can only come via a new election law that would restructure voting to shift power away from political party bosses.

Radical change can't come soon enough. As Ahmed Tabaqchali argues, the state simply cannot afford to continue funding the patronage networks at the heart of Iraq's current political system. Iraqi leaders therefore have a choice of dismantling the patronage system now, or suffering from its collapse later. "All solutions to address the size of the public sector, whether radical or gradual, will involve a high element of economic pain that would hit the weak and vulnerable the hardest," Tabaqchali writes. "Early and real reforms have the advantage of allowing the government to use whatever resources it has, such as foreign reserves, to shield and protect the most vulnerable as much as possible." They have no time to waste. If global oil prices do not rise quickly, Iraq can survive for about 15 months by financing deficits with its foreign currency reserves before being forced to devalue the Iraqi dinar and enter new depths of financial crisis. Tabaqchali is not optimistic, however: "It is very likely that Iraq’s political elite will, just like their Lebanese counterparts, persist in pursuing the ostrich policy and continue to hope for a recovery of oil prices."

Interview of the Week

Faeq Sheikh Ali is one of the more prominent and experienced advocates for major reforms in Iraq's political system. A member of Parliament with the left-wing Civil Democratic Alliance bloc, he wields relatively little legislative power but does often represent the sentiments of the protest movement that has largely shaped the course of Iraqi politics since October 2019. In a July 30 interview with Dijla TV, he expressed profound pessimism about the country's future.

Reform is all but impossible, he argued, because Iran-backed paramilitary groups hold a dominant position inside the government and have largely merged with the corrupt political elite.

[Kadhemi] should never have set his mind to becoming prime minister in this deteriorating environment, with this dark outlook for Iraq, and under the rule of the militias. .... Excuses like, "We don't know who's doing the killing, we don't know who's doing the assassinations" — this talk is wrong, whether it's coming from this government, or the previous one, or those that came before. No! The ones doing the killing are the ones who are in the government. The militias are the ones governing us... the militias have gotten into all the government agencies, the army, the police, the National Security Service.

Ali warned against Kadhemi’s efforts to hold early elections, even under a revised election law, because any plans to move to a district-based system would allow establishment parties to disenfranchise voters through gerrymandering.

If early elections are held, they will smash Iraq's future — and the sacrifices and blood given by the youth in the protests will be wasted — because [organizers of the protest movement] are not prepared for elections, not ready to form political blocs or parties. And to tell the truth, I can't criticize them for that. I know how it is. There are people trying to manipulate them, militias trying to get to them, people trying to walk on their heads, people trying to climb on their shoulders.

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