This Week In Iraq

Top Energy Stories

Iraq is negotiating with Saudi Arabia and U.S. firm Honeywell over a new Basra mega-deal that would involve the development of the Ratawi oil field, the construction of a gas processing hub, and new electricity generation. If it goes forward, the project would give Saudi Arabia its first major investment in Iraq's energy sector, at an oil field just 100 kilometers from the Iranian border, and it would help Iraq reduce its dependence on Iran for gas and electricity – a key condition the Trump administration has articulated for extending a sanctions waiver that expires in September. Read the full story here.

The new deal for Ratawi would put a final nail in the coffin of the Southern Iraq Integrated Project (SIIP), which Iraq had been negotiating for several years with ExxonMobil and the China National Petroleum Corp. The proposed scope of SIIP was even bigger than the Ratawi deal, involving not only upstream field development and associated gas processing, but also the construction of new oil export infrastructure and a network of pipelines to feed southern oil fields with water that is needed to support underground reservoir pressure and boost crude production. The Iraqi government gave the project notional approval in May 2019, but negotiations were hampered by disagreements over the finer points of the financial terms. The Oil Ministry had already been facing political headwinds, which grew even stronger when the U.S. killed Qassim Soleimani and Abu Mahdi al-Mohandis in January, aggravating a rift in the Iraq-U.S. relationship that presented major risks for the the country's economy and investment climate. The SIIP project has not been the subject of serious negotiations since.

The U.S. government is also paving the way for a new oil deal in Syria. As Amberin Zaman reports in Al-Monitor, a company named Delta Crescent Energy has recently signed a deal with the Kurdish-led autonomous government in northern Syria to develop oil fields under their control. The Trump administration appears to support the deal: Delta Crescent has received a waiver from the U.S. Treasury Department's Office of Foreign Asset Control (OFAC), which is necessary due to sanctions against Syria.

Who is behind Delta Crescent? Multiple people with first-hand knowledge of the deal have confirmed to Iraq Oil Report that Delta Crescent's leadership team includes three men: John Dorrier, Jim Reese, and James Cain. Dorrier is the founder and former chief executive of Gulfsands Petroleum, which was unsuccessful in gaining a foothold in Iraq but had a contract in northeast Syria until it had to stop operations to comply with EU sanctions against the Assad regime. Cain is a lawyer with U.S. law firm Kilpatrick Townshend, which he rejoined following a four year stint as U.S. ambassador to Denmark. He appears to be instrumental in securing political support in Washington. Reese is the founder of the security firm TigerSwan, which has held contracts in Iraq and also gained notoriety for its work in the U.S., where it participated in crackdowns on protests against the Dakota Access Pipeline. Reese has been a vocal advocate of a strong American military presence in Syria. "We own the whole eastern part of Syria," he told Fox News in 2018. "That's ours. We can't give that up."

But where will the oil go? It’s unlikely the Trump administration would approve a deal to sell crude to the Assad regime. Turkey is also an unlikely buyer, as President Recep Tayyip Erdogan considers the autonomous administration in Syria to be coextensive with the Kurdistan Workers' Party (PKK), a designated terrorist organization. That leaves one possible outlet: Iraq's semi-autonomous Kurdistan Regional Government. Iraq Oil Report has detailed an oil and fuel trade across the Iraq-Syria border worth tens of millions of dollars per month, dating back to at least 2014.

Prime Minsiter Mustafa al-Kadhimi's anti-corruption campaign is extending to Basra's Um Qasr Port, a key logistics chokepoint for the oil industry. In an apparent effort to crack down on paramilitary groups that are profiteering from their control over Iraqi border points, Kadhimi has visited both Um Qasr and a land crossing with Iran in Diyala province in recent weeks, and also ordered the elite Counter-Terrorism Service to deploy to the al-Qaim border crossing with Syria in Anbar. The campaign is likely to meet resistance from the web of powerful and violent actors that stand to lose a major revenue stream. Read the full story in Iraq Oil Report.

Iraq's dilapidated power grid is one big reason behind the government's failure to provide 24-hour electricity, which has imposed acute suffering on Iraqis recently as temperatures have risen above 50 degrees Celsius. Ali Al-Saffar of the International Energy Agency (IEA) explains how, despite the allocation of around $20 billion to capital investments in the electricity sector since 2012, just a fraction of the additional gigawatts generated reach homes and businesses. The rest are eaten up in inefficient, poorly-maintained power stations and transmission networks. He also provides possible solutions: on the supply side, authorities could direct government-owned generators to supply electricity to the grid, and make sure that all available capacity is in operation. Already this month, officials in Basra have struck deals with international oil companies to use spare generation capacity at fields they manage to feed the national grid. And on the demand side, consumers could be encouraged into using less power through tariffs and meters, and through subsidies on the most efficient cooling units. Whatever measures are taken, they need to happen soon, as Iraq’s growing population means power demand will only continue to rise.

National News

Kadhimi has set a target date for Iraq's next national elections. If all goes according to plan, Iraqis will go to the polls on June 6, 2021, a full year before the legal deadline. Kadhimi took office vowing to press for early elections, but it's not just up to him. The election date needs to be approved by Parliament, whose members would effectively be voting for an early end to their terms and the perks of office they enjoy.

The announcement may have been an indirect attempt to quell public outrage that has risen in response to both failing government services and a recent crackdown on protesters in Baghdad's Tahrir Square. Two protestors were killed by security forces last Sunday – the first demonstrators to be killed under Kadhimi’s watch. The prime minister has promised a thorough investigation into the deaths, but previous inquiries into similar killings have not resulted in accountability.

The broader protest movement has been animated largely by opposition to an Iraqi political class that profits from a system of corruption. Writing for the New York Times Magazine, Robert F. Worth investigates the inner-workings of Iraq's kleptocracy, including a detailed explanation of a major cash cow for several political parties: the Central Bank of Iraq's dollar auctions.

Interview of the Week

Hisham Daoud, an advisor to the prime minister, discussed the government’s economic and political strategy in a wide-ranging July 24 interview with the U.S.-funded al-Hurra television channel. Daoud defended the Kadhemi government’s policies, while also acknowledging the depth of the challenges it faces. Daoud described Kadhemi’s goal as bridging divides:

The political forces that have ruled Iraq since 2003 made an art of dividing society. The mission now is to unite what was fragmented and divided, but through a clear dynamic. A dynamic that upholds the legitimacy of the state, the legitimacy of the state in the use of weapons, in obedience to the law, support for putting people in the right places. But we know the balances of power here and there. The choices are, are we heading towards conflict or towards uniting people as much as possible in a common current and a common dynamic. The more we can reduce the margin of conflict, the more we can save the Iraqi people from bloodshed, material losses, and suffering.

Daoud discussed Kadhimi's recent trip to Iran and his outreach to Saudi Arabia, framing both as part of a strategy of building up Iraq’s economy and promoting its sovereignty and independence:

Developing economic relations with Iran will be a positive thing. I believe that once there are advanced economic relations between the two countries, the economic language will become dominant, and the political and military language will decline. But this depends on Iraq's capabilities... however much we develop Iraq's economy, that will give us a bigger margin in dealing with our needs with regards to other states in the region and in the world.

Daoud’s remarks indicate that the Kadhimi administration seeks to diversify Iraq’s economy away from oil and build economic bridges to other countries while avoiding political entanglements. However, the present coronavirus-induced economic crisis, and the Kadhimi government’s own commitment to holding elections next year, may mean it lacks the necessary tools to bring about such a transformation – and can at best hope to make a modest start in changing the country’s economic direction.

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