U.S. Elections and Iraq
Joe Biden’s win in the U.S. presidential election is inspiring guarded optimism in Iraq. Iraq Oil Report interviewed 20 political, security, and business leaders, who generally agreed a Biden administration will likely feature a more predictable foreign policy, even if Iraq is unlikely to be a central priority. Iraqi leaders are especially hopeful that a Biden administration will lead to easing tensions with Iran, reducing the frequency of violent incidents between Iranian proxy forces and U.S. interests in Iraq — and making it slightly easier for Baghdad to balance its relations with Washington and Tehran. The Trump administration for its part is trying to make the most of its 10 remaining weeks in office to salt the diplomatic ground. According to Barak Ravid at Axios, "the Trump administration wants to announce a new set of sanctions on Iran every week until Jan. 20."
Iraq's oil sector seems to be mostly ambivalent about the U.S. elections. While the Trump administration tried to use sanctions waivers as an incentive for Iraq to sign contracts with American companies, even those who benefited from that kind of transactional diplomacy say the most important factors affecting private-sector investment decisions have always been resource availability, commercial terms, and political and social stability. “In the end it comes down to commercial negotiation and willingness to do a deal on both sides,” said a senior American oil industry official. Foreign companies might be marginally less nervous about investing in Iraq if the country is less frequently treated as a theater for conflict between the U.S. and Iran. Beyond that, industry officials told Iraq Oil Report, it's business as usual.
One oil company that could be more directly affected by Trump's loss is Delta Crescent. The American company benefited from the personal backing of outgoing Secretary of State Mike Pompeo to secure an oil development contract with the Kurdish-led Autonomous Administration of Northeast Syria, where production would likely be monetized via exports to Iraqi Kurdistan. Four companies applied for a license from the Treasury Department's Office of Foreign Asset Control (OFAC), but only Delta Crescent received one, raising suspicions of improper favoritism. One leader of Delta Crescent, John Dorrier, has made campaign contributions to Sen. Lindsey Graham, who has publicly advocated for the oil deal. Another company leader, Jim Reese, is the founder of TigerSwan, a security firm that worked in Iraq and also gained notoriety in the U.S. for participating in crackdowns on protests against the Dakota Access Pipeline. Delta Crescent has no operational track record, making it unlikely that it was chosen over three other companies on the basis of merit alone.
Dorrier has a history of unsuccessfully attempting to leverage political connections to secure oil deals in post-conflict zones. Back in 2007, when he was CEO of another upstart oil company, Gulfsands Petroleum, Dorrier transmitted a proposal via the office of then-Sen. Chuck Hagel to Gen. David Petraeus for a project that would have granted the development rights for all associated gas generated at several oil fields in Iraq's Missan province. The deal went nowhere. Even during a chaotic and profligate era when more than $8 billion in reconstruction spending was lost to mismanagement, corruption, and failures of oversight, the Gulfsands proposal raised red flags. According to briefing documents compiled for Petraeus, which were obtained by Iraq Oil Report, U.S. officials worried that Dorrier's company had neither the experience nor the financing to execute such a large project. One slide of the presentation gave examples of other oil companies with prospective interests in Iraq, ranking them by size and capability into Tiers 1, 2, and 3. Gulfsands had a category of its own: "Tier ?" That lack of capacity turned out to be a deal-breaker back then. When Dorrier tried a similar pitch with a new company 12 years later, the Trump administration was far more receptive. It remains to be seen what kind of scrutiny Biden's incoming team will apply.
Energy and Economic News
Iraq's Parliament approved a $10.2 billion emergency borrowing law. The revised bill provides less than one-third the original amount of funding requested by the Cabinet, but it still gives Iraq a minimum level of liquidity needed to make delayed payments to public-sector employees and relieve some pressure on the Oil Ministry, which has been pumping oil above its OPEC-plus quota largely because of domestic financial necessities. Any government borrowing needs to be authorized by a law, but Kadhimi's predecessor, former Prime Minister Adil Abd al-Mahdi, neglected to pass a 2020 budget. Instead, the government has financed its expenses via an emergency financing law that was passed in June, which authorized $12.7 billion in domestic borrowing and $5 billion in international loans. The government has now exhausted that domestic borrowing authority, and efforts to pass a belated 2020 budget quickly faltered. The new emergency financing law is part of a broader set of measures Kadhimi's government has proposed in response to the financial crisis.
The new financing law has re-opened oil and revenue disputes between Baghdad and Erbil. Over the summer, leaders in Baghdad and Erbil had agreed that the federal government would make monthly transfers of 320 billion dinars ($271 million) in exchange for half of the KRG's customs revenue. Two such payments have been made so far. But the new law is vague on whether — or under what conditions — they will continue. Massoud Barzani, the former president of the semi-autonomous Kurdistan Regional Government (KRG) and the leader of the ruling Kurdistan Democratic Party (KDP), expressed his displeasure in a statement: "Regretfully, once again the Iraqi political parties, Sunni and Shia, stabbed the Kurds in the back with a dagger in the Council of Representatives." Read the full story on Iraq Oil Report.
Iraq boosted its production by about 150,000 barrels per day (bpd) in October. The increase comes as no surprise after the Oil Ministry issued orders in mid October to hike output from at least eight fields in southern Iraq by a combined 250,000 bpd. The added production puts Iraq well over OPEC's quota expectations, and perhaps provided some of the impetus for a videoconference Tuesday between Iraqi Prime Minister Mustafa al-Kadhimi and Saudi Crown Prince Mohammed bin Salman. The OPEC-plus Joint Ministerial Monitoring Committee, which tracks quota compliance, is scheduled to meet next week, on Nov. 17. Read the full story on Iraq Oil Report.
Asaib Ahl al-Haq opposes efforts by the Kadhemi government to attract investments from Saudi Arabia. In an interview with U-TV, a member of the group's leadership, Saad al-Saadi, said, “Our reasons for objecting to these investments are both political and economic. The political reason is that Saudi Arabia is accused of killing Iraqis, of issuing fatwas that declare Iraqis to be infidels, of bringing in car bombs and suicide bombers.... This has been proven.” He also accused Saudi Arabia of "working today on an agenda tied to America, Israel, and the Emirates to push through the Deal of the Century, for naturalization of relations with the Zionist entity. It is an economic supporter of this project’s progress.” Saadi claimed that tribal figures and intellectuals have held conferences in several southern provinces to discuss their opposition to any possible Saudi investment in the country. Asaib Ahl al-Haq has a relatively small delegation in Iraq's Parliament — but it also has a powerful armed wing that has a history of bold attacks, including numerous kidnappings, which gives it significant power to deter investment from Saudi Arabia or other Gulf countries.
Iraq's most pressing energy sector priority is arguably to stop wasting natural gas. Much of the country's associated gas, which is generated as a byproduct of crude production, is burned off as waste instead of being put to use for electricity generation and other industrial needs. The Basra Gas Company (BGC), a joint venture between Shell, Mitsubishi, and the state-run South Gas Company (SGC), is the flagship enterprise working on this problem. Iraq Oil Report spoke with Marfaa Kadhim al-Assadi, the deputy director of BGC, to get a status update on the project — including the return of Royal Dutch Shell after a series of payment disputes resulted in volatile protests and the emergency evacuation of expat staff. Read the full Q&A on Iraq Oil Report.
Iraq has a new electoral law. The legislation represents a significant step toward meeting the prime minister's goal of holding early elections in June 2021. Several procedural and political hurdles remain, however, according to Omar Sattar, writing for Al-Monitor. "The Electoral Commission needs a period of no less than six months to prepare for the elections based on any new law," said Abdul Hussein al-Hindawi, the prime minister's election adviser. "We hope for the resolution of the debate regarding the Electoral Commission structure and the approval of the Federal Court Law, among other matters related to organizing the elections." Many government officials believe elections are likely to happen in the fall of 2021 at the earliest.
A new election law and early elections have been key demands of Iraq's protest movement. Anti-government demonstrators blame the entire political class for two decades of failure to fix systemic problems, and have called for a voting system that will remove some of the power from political party leaders — part of an effort to shift the country away from the patronage-based system that has fed on industrial-scale corruption and prevented meaningful reform. The new electoral law switches to district-based voting, dividing the country into nearly 100 electoral districts, each of which elects three to five MPs to the 329-seat Parliament. Within these contours, votes will go to individual candidates, and will not be transferrable between lists. While political parties are still likely to retain significant power, the new law does appear to give independent candidates a better chance of winning seats. Insiders from a variety of parties say they expect established parties will try to recruit local figures, including those with strong tribal networks, to better compete in the new, smaller districts.
Iraqis who have worked with the U.S. military are increasingly vulnerable to Iran-backed armed groups. According to Louisa Loveluck, Missy Ryan, and Mustafa Salim, reporting for the Washington Post, the U.S. military has long provided Iraqi security forces with information about Iraqi employees, including their names, addresses, and license plate numbers. Now, however, Iraqi forces are so permeated by Iran-backed paramilitaries that some Iraqi officials worry the hostile groups have access to a roadmap for intimidation and retribution. Some of the most vulnerable Iraqis include military translators who were on the front lines of various conflicts with U.S. troops. When their jobs come to an end, they are left with little protection and almost no opportunity to immigrate to the U.S. “I’m so proud of all the days I’ve been working with the greatest forces in the world,” said one translator who served alongside Navy SEALs. “But the problem is that after they are gone, their government doesn’t care about us. We are literally left behind.”
Iraq's plans to close displacement camps could leave 100,000 people without homes. According to Louisa Loveluck, reporting for the Washington Post, the Ministry of Displacement is closing several camps as part of a "safe and voluntary return" program. But human rights groups have criticized the move as premature, since more than a million Iraqis are still displaced following the war against the self-proclaimed Islamic State (IS) militant group. “Closing camps before residents are willing or able to return to their homes does little to end the displacement crisis,” said Jan Egeland, secretary general for the Norwegian Refugee Council, according to the Post. “On the contrary, it keeps scores of displaced Iraqis trapped in this vicious cycle of displacement, leaving them more vulnerable than ever, especially in the middle of a raging pandemic.”