Top Energy Stories

Iraq cut its oil production by more than 200,000 barrels per day (bpd) in September, moving closer to compliance with its promises to the OPEC-plus coalition. Countrywide output averaged 3.68 million barrels per day (bpd), according to an Iraq Oil Report analysis based on data gathered from every producing field managed by both the federal government and the semi-autonomous Kurdistan Regional Government (KRG) — down from 3.89 million bpd in August. Iraq is under pressure from OPEC-plus to make supplemental cuts in compensation for past over-production — a gesture of quota compliance that could help support global oil prices and, by extension, the Iraqi budget. At the same time, the government is facing tough technical and financial obstacles. For more details on the Oil Ministry's balancing act, read the full story on Iraq Oil Report.

Kirkuk’s power grid is suffering as a result of an underperforming gas pipeline from the Ajeel field. Unknown saboteurs targeted the pipeline with an IED on Oct. 3. During repair works, leaks were discovered that are still being fixed. For more on the security of northern Iraq's oil infrastructure and the importance of Ajeel for Kirkuk-area power supplies, read the full story on Iraq Oil Report.

Reports of a prospective Kurdistan Oil Company have been greatly exaggerated. Oil Minister Ihsan Ismaael apparently told the Iraqi News Agency that he had reached a "positive understanding" with leaders in Erbil on the potential formation of a company to manage the semi-autonomous Kurdistan Regional Government's (KRG) oil assets. The report set off a flurry of speculation about the potential to resolve a decades-long dispute over oil authorities. It also raised questions about the details and timing of Ismaael's plan. But the most important questions initially went unanswered: is it really possible that top KRG leaders are considering an arrangement that would require surrendering a large degree of control over oil assets that provide the majority of their revenue? Have any KRG leaders indicated such a proposal might be viable?

In a word: no. Nobody has taken any steps to form a Kurdistan Oil Company. Iraq Oil Report has confirmed that Ismaael raised the topic during recent negotiations over oil and budget issues. According to a senior KRG official, Ismaael reportedly said, "Why don’t you form a national oil company to preserve the national wealth? Like what we have with the Basra Oil Company, South Oil Company and North Oil Company?" The KRG official said the Kurdish delegation replied "that it was a matter worth looking into. But it was his proposal — just an idea for the time being, nothing more. There is nothing official yet.” The KRG’s official spokesperson also downplayed the initial media reports on the issue, saying that the regional government's focus remains on “finding practical and legal solutions on oil and gas that protect the rights of the people of the Kurdistan Region and Iraq." Ismaael's proposal is surely significant, in that it reveals how the oil minister is thinking about a potential commercial framework that could be used for managing KRG oil assets jointly between Baghdad and Erbil. But without buy-in from KRG leaders, the idea is likely to remain entirely theoretical.

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Economic News

Iraq is taking new steps in response to its catastrophic financial crisis. Without urgent and widespread reform, the country is facing insolvency. A “white paper” sent to the Iraqi Parliament this week outlined drastic proposals to cut government spending, which are likely to be as unpopular as they are necessary. Separately, the Cabinet has proposed a $35 billion emergency financing bill to fund public sector salaries and other essential spending for the remaining months of 2020. The fiscal pressures also make it likely the Iraqi dinar will be devlalued for the first time in two decades. Read the full story on Iraq Oil Report.

Economic reform can only hope to succeed if the prime minister spends major political capital. Writing for 1001 Iraqi Thoughts, Ali al-Mawlawi says the white paper’s proposals to reform the economy and cut government spending are ambitious but not unprecedented. Similar initiatives have failed in the past. Mawlawi defines specific areas that will likely face backlash, including an aim to cut the public payroll from 25 percent to 12.5 percent of GDP within three years, and curbing financial support to state-owned enterprises (SOEs) by 30 percent for three consecutive years, with the eventual liquidation of unsalvageable companies. "Implementation has always been the Achilles heel of reform-minded policymakers and there is little reason to believe that this attempt will be any less problematic," he writes. As one example, he points out that even though the government has created an online portal for job-seekers, there are no jobs listed there because the economy is not generating new employment.

To move away from its reliance on oil revenues, Iraq needs to make major investments in the electricity sector. Writing for Foreign Policy, former Electricity Ministry Luay al-Khateeb details the many problems that have afflicted Iraq’s power sector, including ineffectual short-term solutions, an inability to manage raw materials, conflicting political agendas, and corruption. He outlines the efforts he guided as minister to move Iraq towards to gas-fuelled power and use of renewable resources, and to reduce reliance on Iranian power imports, while planning connections to cross-border grids elsewhere to keep the lights on. Electricity service is also a key security issue, Khateeb says, raising the urgency for current and future governments to make further progress.

Interview of the Week

Hoshyar Zebari, a former federal finance minister and foreign minister, said the Trump administration’s threats to close the U.S. embassy in Baghdad "are serious and real." Speaking on Dijlah TV on Oct. 11, Zebari said that the prime minister is "waiting and watching" the situation, in light of the U.S. elections.

A senior member of the Kurdistan Democratic Party (KDP) — the most powerful party in the KRG — explicitly compared pro-Iran militant groups that have been targeting the U.S. embassy to the self-proclaimed Islamic State (IS), and recalled how Kurdish leaders wrongly thought at first that IS would not attack Erbil.

When they were at the gates of Samarra in 2014, some of our people thought IS wouldn't attack them. I was one of the people who said, "No, you will be IS's first target. Prepare yourselves and get ready, because this is an extremist religious ideology, opposed to any progressive, secular, democratic thought. Any proximity between the region and the West — they are against it.

Zebari also said that the Kurds, who had survived bombardment with chemical weapons by Saddam Hussein’s regime, are not afraid. His remarks suggest that Kurdish leaders see a total rupture in Iraq-U.S. relations as dangerous, and are willing to risk tensions with pro-Iran groups to avoid such a scenario.

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