Top Energy Stories

Escalating protests across the semi-autonomous Kurdistan region of Iraq are beginning to have an impact on the oil sector. The 30,000 barrels per day (bpd) capacity Sarqala oil field, operated by Gazprom Neft, stopped loading trucks late Tuesday night, amid fears that the vehicles transporting crude would become targets for demonstrators who have taken to the streets, angry over delayed public sector salaries and corruption. By Thursday, storage tanks at the field were filling up with oil that would normally be trucked out, and two sources told Iraq Oil Report that production was being shut in because of a lack of storage capacity. Oil sites around Kurdistan appear to be secure, but the broader unrest has resulted in at least eight deaths so far, dozens of injuries, and arrests, as well as damage to public and private property and political parties’ offices. Representatives from the Kurdistan Regional Government (KRG) are continuing drawn-out negotiations with Baghdad over the share of the federal budget that Erbil receives, from which it pays civil servants. Read the full story on Iraq Oil Report.

Another ongoing risk to oil sector operations in northern Iraq comes from attacks by armed groups. Early Wednesday, IED explosions targeted two wells at Khabbaz oil field, operated by the state-run North Oil Company in Kirkuk province. The attack itself is unlikely to take much production offline, but it highlights a broader threat to Kirkuk-area fields currently responsible for about 280,000 barrels per day (bpd) of production. For more details on both the Khabbaz attack and the broader security landscape around NOC-operated fields, read the full story on Iraq Oil Report

The Chinese state-owned company ZhenHua is the likely winner of a deal for Iraq's first-ever forward oil sales. Iraq Oil Report broke the news of Baghdad's proposal last month to raise nearly $2 billion in 2021 by taking advance payment for a year's worth of oil as part of a five-year supply deal — one way in which the government is trying to bring in much-needed cash to cover expenses during a time of financial crisis. According to a Bloomberg reporting team, the winner of the deal is ZhenHua, a subsidiary of Norinco, the largest Chinese state-owned defense contractor. Zhen Hua already has extensive business interests in Iraq: it is developing the southern part of the East Baghdad oil fieild; it is a minority partner along with the China National Petroleum Corp. (CNPC) in Missan province's Ahdab oil field; and it recently finished a joint-venture agreement with Iraq's State Oil Marketing Organization (SOMO) to help sell Iraqi oil at a premium to the official selling price. “The Iraqi agency in charge of petroleum exports, SOMO, picked ZhenHua after asking oil traders for bids, according to people familiar with the matter,” Bloomberg reports. It is now up to Prime Minister Mustafa Al-Kadhimi and his Cabinet to finalize the deal.

How To Transport Personnel in a Pandemic

The covid-19 pandemic has posed unprecedented logistical challenges for companies in Iraq's energy sector. One problem is simply how to move personnel safely into and out of the country. Companies face shifting government policies on visas, quarantine procedures, and testing requirements — as well as uncertainty over how those regulations will be interpreted and enforced on the ground.

FronteraSky has operated in Iraq for years, providing companies with integrated solutions, from acquiring visas and navigating immigration procedures, to arranging private and charter flights, to quarantine and covid-19 testing. Iraq Oil Report spoke with FronteraSky President Carlos Barbosa to discuss the best practices his company has established for navigating transportation logistics in the pandemic era. Read the full interview here.

National News

Iraq’s vaunted F-16 fleet is no longer flying missions as part of the U.S.-led coalition’s operations against the self-proclaimed Islamic State. The fleet is in such a poor state of repair that only seven jets — fewer than 20 percent — can still fly without serious risk of crashing, according to senior current and former Iraqi officials. By quietly dropping the Iraqi F-16s from its air tasking order, the U.S.-led coalition has effectively codified its assessment that the multi-billion-dollar program is no longer fit for combat. Read the full story on Iraq Oil Report.

The sidelined F-16s highlight a failure of both the U.S. and Iraqi governments to address the dysfunction and corruption that has plagued Balad Airbase. Iraq Oil Report published an investigative report this summer highlighting some of the most serious problems, which prompted the Iraqi Ministry of Defense to investigate. The government has not published any findings, however, and the investigation has not resulted in any public accountability. Iraq spent billions of dollars on the jets, which require hundreds of millions of dollars per year to keep in working order. "All the way up the military side of the chain, there was nobody who thought that us ever selling F-16s to Iraq was a good idea," one U.S. military officer told Iraq Oil Report, noting that F-16s are not ideally suited to Iraq's military needs. "We all felt like we were just doing damage control at this point. It was just a suicidal, stupid thing that happened 10 years ago."

The Iraqi government is desperately searching for revenue beyond the oil sector. Shaker al-Zubaidi, director general of the General Tax Authority, told Salem Zidane of Al-Monitor about a plan to impose a 10 percent sales tax on all commercial centers, markets, hotels, and restaurants. According to Zidane, the measure will be included in the 2021 budget and implemented next year, as the Iraqi government attempts to maximize non-oil revenue sources. But the devil is in the details, and Zubaidi admitted that actually collecting the tax would be difficult, mostly because of a countrywide lack of electronic payment systems: Iraq's is a cash-based economy, complicating the levying of taxes. Previous plans to enforce sales tax have not gone well. In 2015, then-Prime Minister Haider al-Abadi’s government was unable to enforce sales taxes after shops refused to increase their prices, fearing that customers would switch to buying goods from open-air markets instead, where the taxes were less likely to be enforced. In June, Mustafa Kadhimi’s government retracted a decision to attempt to impose income taxes.

Iraq celebrated Victory Day on Thursday, the three-year anniversary of declaring the territorial defeat of the IS group. Social media sites filled with elegies to fighters killed in the grinding war, and Kadhimi visited security forces in Fallujah, Anbar province, which was taken by IS militants in January 2014 and liberated in June 2016. Mosul, the militants’ de facto capital, wasn’t freed from their grip until July 2017. Since then, the city has suffered from a slow pace of reconstruction, according to Samya Kullab, reporting for the Associated Press. With funds not forthcoming from the Iraqi government, residents have had to rely on their own networks and resourcefulness to get back on their feet. Ammar Mouwfaq, a local soap shop owner, tells Kullab that he has little faith in authorities not to steal reconstruction funds. He spent his own savings in order to reopen his business. “What you see now, I did alone,” he said. Kullab portrays a haunting image of a city that has a long way to go before it really recovers from the IS occupation. “The Old City, with its labyrinth of narrow streets dating back to the Middle Ages, now serves as an eerie museum of IS horrors,” writes Kullab. “Signs of a former life — a pair of women’s shoes, a notebook covered in hearts, shells from exploded ammunition — are untouched.”

Iraq's most influential cleric is distancing himself from the government's al-Hashid al-Shabi (Popular Mobilization) paramilitary program. Grand Ayatollah Ali al-Sistani indirectly helped launch the Hashid program by calling on Iraqis to take up arms against the IS group in 2014, and his backing has helped bolster the reputation of the broader Hashid organization. Now, however, four brigades closely associated with Sistani are breaking away because of concerns that the Hashid program is overly influenced by commanders loyal to Iran’s Islamic Revolutionary Guard Corps, according to Suadad al-Salhy, reporting for Middle East Eye. “In their withdrawal announcement on Dec. 1, the Abbas Combat Division, Ali al-Akbar Brigade, Ansar al-Marjiya Brigade and Imam Ali Division underlined that the new force will exclusively include fighters that ‘literally applied Sistani's fatwa and followed his instructions,’” reports Salhy. The new force – known as the Mobilization of Holy Shrines – consists of 15,000 fighters and will report directly to the office of the Prime Minister, who is also commander-in-chief of Iraq’s armed forces. Commanders from the Mobilization of Holy Shrines said that the split was largely the result of Iran-aligned brigades making senior Hashid appointments without consulting the prime minsiter. “These developments led us to the conviction that they were determined to continue on the same approach,” said a commander quoted by Salhy. “Therefore we had to deal a very strong blow to them, otherwise we will lose control forever.”

More Syria Oil Intrigue

How did a small American oil company with no operational history win an oil deal in northeast Syria? Delta Crescent Energy is by all indications a shell corporation led by three men — James Cain, Jim Reese, and John Dorrier — with connections to powerful figures in the Trump administration. They were able to sign an oil deal with the Kurdish-led autonomous administration in Rojava, Syria, after receiving a waiver from the U.S. Treasury Department. At least three other companies applied for such a waiver, but were denied; in effect, the Trump administration appears to have used its sanctions authority to give Delta Crescent exclusive rights to operate there, all but ensuring the company could demand favorable contractual terms from cash-starved Rojava.

Treasury granted the decisive waiver to Delta Crescent after receiving "foreign policy guidance" from the State Department, according to U.S. Special Envoy to Syria Joel Rayburn, who testified Wednesday before the House Foreign Affairs Committee, according to Matthew Petti, reporting for Responsible Statecraft. Rayburn said he had met with the leaders of Delta Crescent, as well as Nechirvan Barzani, the president of Iraq's semi-autonomous Kurdistan region, which currently provides the only realistic route for monetizing new Syrian oil production. “We didn’t lobby anyone for the deal,” Rayburn said, but “we’ve met with members of that company, with local authorities, with Nechirvan Barzani.” In response to a question on whether he had fielded proposals from other companies, Rayburn said, “Not that I was involved in.” The testimony provided more evidence suggesting that Delta Crescent got the U.S. waiver — and avoided having to compete with other companies for the Syria deal — because of political connections.

Cui bono? Delta Crescent's special treatment raises questions about who stood to gain from the deal. Zack Kopplin of the Government Accountability Project filed a Freedom of Information Act request, and a subsequent lawsuit, to secure a copy of the waiver and associated documents from Treasury. The records were released 15 minutes after Rayburn's testimony, Kopplin said. Despite extensive redactions, the records do suggest that Delta Crescent's ownership extends beyond Cain, Reese, and Dorrier, and includes unnamed "parent companies." Kopplin speculates the documents were intentionally released immediately after the House Foreign Affairs Committee hearing to avoid questions from legislators who might have otherwise thought to ask about the identities of all of Delta Crescent's owners. Who stood to profit from the Trump administration's decision to grant Delta Crescent an exclusive waiver? The answer has been redacted by the Trump administration.

Iraq Transportation Logistics Made Easy

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;
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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.

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