As the Gulf crisis continues with the rivalry between Saudi Arabia and Qatar, with no sign of a resolution, each country deems it necessary to seek a rapprochement with Iraq and win the country over to its own economic and political camps.
Each is trying to have Baghdad align with its axis, while Baghdad affirms its need for help from both countries to get rid of the destruction left by the Islamic State (IS) in the Sunni areas.
A Qatari delegation led by Deputy Prime Minister Mohammed bin Abdulrahman Al Thani visited the Iraqi capital of Baghdad on Nov. 7, where he met with the Iraqi president, prime minister and parliament speaker to “discuss the ties between the two countries.”
By John Lee.
Iraqi President Barham Salih has told an international conference in Rome that Iraq will remove any impediments to Iraqi and foreign private sector companies, as well as international financial institutions, donor countries and sovereign wealth funds, to invest in major infrastructure projects in the country.
He added that these projects may include deep port facilities in Basra, a highway network, new railways, airports, industrial cities and dams, and irrigation projects in the Nineveh Plain, Garamian, Erbil, as well as land reclamation in the south.
The following is the full text of the speech delivered by His Excellency President Barham Salih at the Conference of the Mediterranean Dialogues on Thursday afternoon, November 22, 2018:
First of all, I’d like to thank the Italian Ministry of Foreign Affairs and ISPI for organizing this conference and the opportunity to address this distinguished audience. I also want to thank His Excellency President Sergio Mattarella and His Excellency Prime Minister Giuseppe Conte for their kind invitation to Italy.
Many may say there is nothing unique about the present day Middle East — we are living through yet another phase of conflict— as we have been plagued by conflict and powers struggles for much of our contemporary history.
However, the military defeat of DAESH and the formation of a new government in Baghdad may well represent a turning point not only for Iraq, but also potentially for the wider Middle East. Iraq has been the epicenter for change in Middle East- for millennia, Iraq has often been the catalyst, the precursor regional order— or disorder!
I dare say that there is now an opportunity to reorient Iraq’s trajectory and propel the country towards prosperity and stability. This will require embarking on fundamental internal reforms, both political and economic.
As such, Iraq is in need of an internal dialogue to address the underlying structural flaws at the crux of the post-2003 political order. Iraqis are indignant at years of conflict and the failure to deliver services. Restoring basic services like water and electricity, reconstruction of the devastated communities by the war with DAESH and repatriation of our IDPs to their homes is an urgent challenge. Corruption and abuse of public funds undermine the viability of the Iraqi state and sustains the cycle of conflict and terrorism. It is imperative to dry up the swamp of corruption.
The defeat of ISIS was undeniably a monumental challenge and impressive success for Iraqi armed forces— the Army, Police, Hashd Al Shabi mobilized by the fatwa of Ayatollah Sistani and Peshmerga forces fought side by side and have become battle hardened. In this context, we are grateful for the help rendered by our allies in the international coalition, led by the United States and which comprised many nations including our generous host Italy. The task ahead is to enhance our defense and intelligence capabilities, integrate our armed forces within the framework of our national defense institution and affirming accountability of all armed forces to the state.
There remain issues of contention between the Kurdistan Region and federal government— time to resolve these issues in a fundamental way through adhering to the constitution. There is renewed hope as the our new PM Dr Adil Abdul Mahdi and the Kurdistan leadership have pledged to move on to resolve these outstanding issues. The recent agreement to resume oil exports from Kirkuk to Ceyhan is a welcomed gesture in this context.
However, ending the crises that plague Iraq also require a reconstruction of the current political order to restore citizen trust in the government. A reformed political order must be based on the protecting constitution, the civil state that strengthens civic values, supports the role of women and their rights, and ensures a commitment to human rights.
A most important and consequential challenge for Iraq today is economic reform and regeneration. Iraq is endowed with immense natural resources, water and fertile land— and an indispensable geopolitical position that can become the hub for regional trade and economic integration. Yet decades of war, sanctions, conflicts, economic mismanagement and corruption have tuned Iraq into an extreme rentier state. This is unsustainable— we are today a 38 million population, and increasing at a rate of one million each year— youth unemployment is rampant— this is a profound security, social and development challenge.
The new government, led by Adil Abdul Mahdi, a pragmatic reformer and economist, is pursuing an ambitious economic restructuring agenda based on empowering the private sector and promoting investment. The unity of Iraq and its security is crucially dependent on strengthening infrastructure links within Iraq and with the neighborhood. This is imperative to bind the country together and to promote common interests with the neighbors and to ensure job opportunities for our youth.
Iraq will be eliminating impediments to Iraqi and foreign private sector companies, as well as international financial institutions, donor countries and sovereign wealth to invest in major infrastructure projects. These projects may include deep port facilities in Basra, a highway network, new railways, airports, industrial cities and dams, and irrigation projects in the Nineveh Plain, Garamian, Erbil, as well as land reclamation in the south. Similar experiences can be seen in Thailand, Vietnam and India, which attracted investment funding from sovereign wealth funds in Japan, China and the Gulf.
In addition to local economic growth, these projects could also contribute to regional economic prosperity. Iraq is an important strategic hub that joins the Arab world with Iran and Turkey and connects the economies of the Gulf and Europe. These could connect the countries of the region so that Iraq could become the heart of a new Silk Road to the Mediterranean.
But for Iraq to succeed and stabilize, it requires a regional order that can embrace and nurture its stability. Iraq has been the domain for regional power struggles— the rivalry over Iraq, and within Iraq, among regional and global actors have sustained and deepened Iraqi crisis. For the last forty years, Iraq has been moving from a war to a war, sanctions and terrorist onslaught and condemned to en ever deepening cycle of crises. This is got to end. It is time Iraq’s stability and prosperity is turned into a common intertest in the neighborhood. Iraq is an important country in the Arab world— This Arab anchor for Iraq is vital economically and politically, and we are emphatic about fully developing our relations with our Arab and Gulf neighbors. Our relations with Iran is also important, we share a border of 1400 km, and much social and cultural bonds — and it is in our national interest to promote good relations with Iran and alike with our northern neighbor, Turkey, which is undeniably an important economic geopolitical actor.
I just come back from a tour to our neighbors in Kuwait, UAE, Jordan, Iran and Saudi Arabia— our message was that Iraq is adamant to protect its independence and sovereignty— our priority is economic regeneration and jobs for our youth— and that we want Iraq’s stability, sovereignty and prosperity to be shared interests for the neighborhood. I made the point that Iraq’s prospects for success is real, but remains precarious, so it should NOT be burdened with further tensions and escalations in the neighborhood. The Middle East needs a regional order based on shared security interests in the face of violent extremists and also rooted in economic collaboration and integration. As in the past, sovereign Iraq with its geopolitical, cultural and economic relevance can be a catalyst for such an order.
I am sure many of you will consider this as too ambitious— perhaps mere wishful thinking. Europe did it after two devastating World Wars— many other regions of the world have moved away from decades of conflict. We must pursue this agenda for our region with vigor and determination— it is primarily our responsibility in the region— and our people deserve better. However, legions of unemployed youth, millions of IDPs in camps— poverty and conflict are the incubators for terrorism, extremism and yes immigrants fleeing our fertile an rich lands to come to the shores of Europe— this should also be shared global interest— certainly a European interest.
This conference theme is about youth and women empowerment. The agenda of reform in Iraq, and the vision for a durable regional order in the Middle East, is what will defeat violent extremism through providing education, meaningful job opportunities for our youth and prioritizing human development as a core aim for our governments and for the global powers.
(Source: Office of the Iraqi President)
By John Lee.
Saudia Airlines has announced that it will start direct services to Erbil in October.
The service will offer three flights per week from Jeddah.
(Source: Saudia Airlines)
Posted in Iraq Transportation News Comments Off on Saudia Airlines to fly to Erbil
By Ahmed Tabaqchali. Originally published by Iraq in Context; re-published by Iraq Business News with permission. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.
Current analysis of renewed Iran sanctions often overlooks the wider context of Iraq’s regional trading relations.
The extent of Iraq’s compliance with US sanctions on Iran has raised concerns regarding the loss of Iranian exports to its economy. However, Iraq’s trade with Iran, when looked at in the context of the wider region, shows these concerns in a different light.
It is arguably smaller than is widely perceived, especially given the long border between the two nations and the supposedly strong influence of Iran in Iraq, something which is contested.
There are many variables, following the imposition of sanctions, that will influence Iraq’s economy and trading relationships, making it difficult to examine any change in Iraq-Iran trade in isolation. Some of these variables are China’s response to these sanctions – its continued or increased purchase of Iranian oil or to impose tariffs on US crude- in light of its escalating trade war with the US.
Add to this the effects on oil demand from a change in world growth prospects as a result of an intensifying US-China trade war. Balancing or complicating events is the success of Saudi Arabia in sustaining increased oil production, or Iraq’s ability to increase its oil production. Finally, the state of the Turkish economy and the declining value of the Turkish Lira (TL[i]), in light of recent events, will play essential roles given Turkey’s substantial trading relationship with Iraq.
Much of the recent coverage of Iran’s trading relationship with Iraq refers to the significant annual exports of USD 12bn- which while significant, should be taken in the framework of Iraq’s overall imports and the trend of these imports from 2003-2017 (chart below). Additionally, Iran’s trade like, all other neighbouring nations’ trade with Iraq, is one-sided to its benefit. Iranian exports to Iraq are made up of goods and services, with the goods element at about USD 6bn for the 12 months ending March 2018[ii], which corresponds to about 15% of Iraq’s imports for 2017.
Iraq’s imports exploded six-fold from 2003 until 2013 to satisfy the population’s demand for goods after the isolation of the years under the sanctions. All of Iraq’s neighbours: Turkey, Iran and Jordan saw massive growth of exports to Iraq during this period for all types of goods, from fresh foods to finished products, given the near destruction of Iraq’ capacity to produce during the 14 years of sanctions and the ensuing civil war.
Iraqi Imports 2003-2017
Iraq imports peaked in 2013, after which the twin shocks of the ISIS war and the collapse in oil prices crushed the economy and with-it Iraq’s demand for goods. The effects of the ensuing ISIS conflict on overland trade routes affected the relative performance in the following years of each country’s exports.
The transit routes and volumes for 2014 (before the full effects of conflict and economic contraction) show the relative importance for each route, not only for the trade with a particular country, but that country’s additional role as a source of re-exports (chart below). In particular, Turaybill for Jordanian exports and re-exports coming from Aqaba, Kuwait’s Safwan, and Basra as a route for world exports as well as for UAE exports and re-exports from Jebil Ali. By 2014 exports from Syria ceased with the exception of the Al Waleed crossing, until it too ended when it fell under ISIS control in May 2015[iii]. Trade with Saudi Arabia ended with the invasion of Kuwait in 1990.
Iraq: Trade transit routes & volumes 2014
(Source: Chart taken from a World Bank Report[iv])
Iranian exports peaked in absolute terms in 2013, declining by about 6% by 2017, while Iraq’s imports declined by 36%, with the result that Iran increased its market share from 11% in 2013 to 15% in 2017. However, this has more to do with the trade routes than any special relationship that Iraq might have with Iran or Iran’s competitiveness. The ISIS occupation closed Iraq’s trade route with Jordan, Syria and degraded the value of the routes with Turkey given ISIS’s occupation of Mosul and surrounding areas.
The growth in Iran’s exports from 2004 is shown in the chart below (data are based on the Iranian calendar up to the year 1395, ending in March 2017). Latest reports indicate that the figure was almost unchanged for the year ending in March 2018. Yet, Iraq’s overall imports recovered by 13% in 2017 vs 2016, and its imports from Jordan and Turkey increased by 8% and 19% respectively. All of which put the relative value of trade with Iran in context.
Given Iran’s natural geographical advantages from the long border and its supposed hegemony over Iraq, it can be argued that it should have accounted for much more of Iraq’s imports or at least cemented its conflict enhanced position when Iraq’s imports recovered. Instead it lost market share from 2016 to 2017, implying that it would continue to lose market share without the imposition of sanctions, and as such the sanctions would only accelerate this trend.
Iranian exports to Iraq 2004 – 2016
While Turkey’s exports of around USD 12bn in 2013 were twice Iran’s levels, most of these exports were destined for the Kurdistan Region of Iraq (KRI) in which Turkish goods and companies played a significant role in the economic boom the region witnessed until 2014. The KRI, in 2017, accounted for 67% of all Turkey’s exports to Iraq up from 50% in 2007[v].
Turkish exports to Iraq suffered significantly due to the triple shock to the KRI’s economy – the loss of federal budget transfers, the ISIS conflict and the oil price collapse – as well as from the contraction of the Iraqi economy. Turkish exports declined 36% in 2013-2016 vs a decline of 43% in Iraq’s total imports, increasing its market share from 20% to 22%. The effective gain in market share is more significant than that, as most of these exports were for Iraq overall as opposed to being concentrated in the KRI. Turkish exports’ 18% recovery in 2017 and total imports’ 13% increase vs flat Iranian exports emphasises the competitiveness of Turkey’s exports whether due to quality or currency competitiveness vs the Iranian Rial.
Finally, the value of Turkish exports actually increased by about 25% in TL terms[vi], as the TL exchange rate against the USD decreased from TL 2.15 by end of 2013 to TL 3.79 by the end of 2017. All of which underlines the importance to Turkey of its exports to Iraq, especially in light of the 40% decline in the TL vs the USD so far in 2018. The significance of these exports might very well increase Iraq’s bargaining power with Turkey over many issues, particularly the water flow of the Tigris and Euphrates. Iraq’s relative bargaining power is further enhanced by the fees -converted to TL- collected for the oil that is shipped through Turkey to its port of Cihan, especially if Iraq resumes the Kirkuk oil exports of 250,000-300,000 barrels per day (bbl/d) that were cut after it reasserted feral authority over these fields in October 2017[vii].
Turkish exports to Iraq 2004 – 2017
Jordan’s exports and re-exports to Iraq suffered a great deal due to the closure of the land routes as a result of the ISIS occupation and subsequent conflict. The chart below shows a decline of 64% from 2013 to 2016 in Jordan’s exports, and probably a similar decline for re-exports. The mild recovery of 8% by 2017 from 2016’s low levels should be seen in the context that the trade route only reopened in October 2017, which argues well for meaningful growth in 2018[viii]. While Jordan’s economy is too small to fully replace Iran’s exports, its fresh foods[ix] would fill some of the gap and its much larger re-exports through Aqaba will make a difference.
Jordan’s exports to Iraq 2003-2016
Kuwait’s exports to Iraq recovered meaningfully in 2017 after a decline in 2013-2016, yet overall volumes are small. Most of these are re-exports through Safwan as Kuwait’s ports complement Basra.
Kuwait’s exports to Iraq 2003-2017
The biggest potential beneficiaries from the sanctions would be Saudi Arabia and the UAE. Developing their relationship and influence in Iraq through trade and investments is magnified without competition from Iranian goods. Their economies would benefit from both the opportunity to replace Iranian products and from a sizeable recovering market. Even though 2016[x] was a low point for UAE’s total exports to Iraq, exports accounted for 53% of the mix making Iraq the seventh largest export market, while re-exports accounted for 47% of the mix, with Iraq as the fourth largest re-export market. All of which highlights Iraq’s importance to both the UAE’s economy and its vital re-export business.
UAE’s exports to Iraq 2003-2016
Trading with Saudi Arabia ended with the occupation of Kuwait, and while it saw a recovery since 2003, it remained tiny compared to the sizes of the two economies. The re-opening of the Arar border crossing in late 2017, coupled with the re-setting of the relationship, will change this significantly with Saudi expectations that trading values would approach those of Iran in ten years’ time[xi].
Saudi Arabia’s exports to Iraq 2003-2016
However, there is more to Iraq’s trade with Iran other than its exports of goods, as the relationship includes the export of electricity and gas, as well religious tourism in the form of at least three million religious tourists a year, especially during the annual Arbaeen pilgrimage.
Iran’s recent exports of electricity have been about 1.0 gigawatts[xii] (GW) increasing available domestic supply to 18.91 GW[xiii] by end of 2016. However, the supply has been frequently interrupted since 2015 as Iraq has failed to make the required contractual payments to Iran[xiv]. The supply cut in July 2018 being the latest case – which was a combination of over-due bills of about USD 1bn[xv] and Iran’s increased domestic needs for electricity. The argument over the importance of this supply has been made moot as Iran would not be able to resume exports in the near future, due to its own domestic needs[xvi]. Short-term solutions to replace this lost supply from Kuwait and Saudi Arabia have the potential to become long-term solutions that will further cement the relationship.
For instance, Kuwait supplying fuel for some of the inactive power stations would go some way for Iraq to increase the utilization of its available but unutilized generating capacity due to lack of fuel. This relationship could be developed to one of mutual benefits with Kuwait supplying electricity in return for Iraq supplying gas[xvii], which while mutually beneficial would help the rebuilding of trust. Similarly, discussions with Saudi Arabia for the supply of electricity, possibly under much more advantageous commercial terms[xviii] than those with Iran, would further develop this relationship.
Much more troublesome and very difficult to replace would be the supply of Iranian gas to power stations in Baghdad and Basra – these were based on deals signed in 2013 to supply 9.1 Billion Cubic Meter (BCM) a year to each city. Exports to Baghdad started in June 2017 and totalled 1.2 BCM by November 2017[xix], while exports to Basra were supposed to start after May 2018[xx]. Both sides have been silent on this recently, as media reports have only covered Iraq’s implementation of the sanctions in the form of banking transactions and closing access to Iranian goods. While details could be delayed until the November implementation of the oil sanctions or Iraq would seek waivers. Either way, there are no easy or short-term solutions for the replacement of this vital supply apart from increased focus and spending on capturing flared gas. However, this gas has been only available recently, and in relatively small quantities, while its eventual replacement, i.e. gas recovered from flaring, is substantially cheaper as the Iraqi government pays the Basra Gas Company (BGC) about USD 2.50 per MMBtu vs for Iranian USD 6.6 – 7.2 per MMBtu[xxi] (data as of early 2018).
Religious tourism is an important sector, employing about 160,000 people directly, extending to 447,000 beneficiaries (2014 data[xxii]). While, Iranian pilgrims and visitors are an essential component in religious tourism, yet a significant percentage of pilgrims or visitors are Iraqis. Moreover, the importance to Iraq’s economy from the spending of Iran’s pilgrims is somewhat misunderstood or overstated. For instance, during the Arbaeen, Iraqis provide hospitality through offering accommodation in their homes and providing free food as part of their religious duties towards the pilgrims[xxiii]. As such, the extra consumer spending during the most prominent religious event comes from Iraqis. The spending by regular Iranian religious visitors, throughout the year, will not be so easily replaced- although it is mitigated by the fact that almost all those visitors use Iranian airlines and employ Iranian tour operators.
Finally, the effects, of the loss of USD access for Iran, on Iraq would take a long time to assess. In 2012, the governor of the Central Bank of Iraq[xxiv] suggested that there were increased demands of 40-50% for the USD following the imposition of sanctions on Syria and Iran, which led to an increase in the market price of the USD vs the Iraqi Dinar (IQD) as can be seen from the chart below.
Iraqi Dinar (IQD) exchange rate versus the USD Jan 2011 – August 2018
(Source: Central Bank of Iraq, Iraqi currency exchange houses, Asia Frontier Capital)
(Note: The sharp pikes in 2012, 2013 & 2015 were due to CBI policies that restricted the sale of USD, but abandoned after causing a rise in market rates)
The convergence of the market price of the USD and the official exchange rate vs the IQD came to an end in 2011 and diverged in 2012 due to the increased demand for the USD. Apart from the spikes due to policies to limit the official supply of the USD, the normal range was 2-4% premium of the market price over the official rate. This increased up to a 10% premium during the worst of the crisis as oil revenues were substantially below expenditures and exports were less than imports. This divergence came to an end with the recovery in oil prices and the declining cost of war until it stabilized at around 1.5% premium to the official exchange rate.
It’s difficult to make the same argument today about the increased demand, or at least a sharp increase, from the current round of sanctions given that the re-integration of Iran with the world economy following the signing of the JCPOA (The Joint Comprehensive Plan of Action) still suffered from the reluctance[xxv] of most banks to deal with Iran. In particular, Iran’s access to the USD continued to be severely limited. All of which might explain that the signing of the JCPOA had not affected the market price of the USD vs the IQD.
However, it is worth noting that after a stabilization over the last few months, the premium of the market price over the official rate increased in early August from about 1.5% to over 2%. This might be related to the sanctions effect or to the signs of recovery of the local economy from increased consumer spending and the resultant increase in demand for imports. A full recovery in consumer demand for imported products would likely take the premium to a range of 2-4%.
It can be argued, that while Iraq genuinely disapproves of the Iranian sanctions given its own bitter 14 years’ experience with them, yet it stands to benefit from their imposition as they will fast-track a number of positive trends that are already taking place.
Iraq’s new-found ability to self-fund its reconstruction, estimated at about USD 18.8bn by end of 2018[xxvi], will accelerate its economic recovery through a liquidity injection of 14.5% into the non-oil economy once reconstruction projects are underway. In the process making the country extremely attractive for its neighbours’ economies, both as a goods export destination and for re-construction businesses. The opportunity to replace Iranian goods increases the benefit for these exporters. Ultimately, this will cement the USD 30bn pledged for the reconstruction of Iraq at the Kuwait Conference[xxvii] from promises into actual spending that will benefit the economies of the providers as much as Iraq’s economy. The deeper implication is a change in their relationship from that of benefactors into partners which will ensure its sustainability- in the process speeding Iraq’s re-integration in the region and ensure a balanced relationship with its neighbours.
The re-opening of the Iraq-Saudi Arabia border crossing and the Iraq-Jordan border crossings will accelerate the rehabilitation of Anbar (arguably disenfranchised after 2003 and a seat of resentment for the post-2003 political order), and the southern governorates (neglected by both the current and the prior regimes). The resumption of trade-links with their associated economic activities would provide a huge boost to the local economies, which while contributing meaningfully to the healing process, will build upon and magnify the economic revival until it becomes self-sustaining with the boost from reconstruction.
Meanwhile, the relationship with Iran might mature if the Iranians look beyond their frustration at Iraq’s compliance with the sanctions and listen closely the anti-government sentiment within Iran following the December 2017 demonstrations. What is vital here, and something that would increase stability within Iraq, is a complete rethinking the relationship to that of a state to state basis from the current relationship involving sub-state actors. This would subsequently benefit Iran by making another Iraqi security crisis less likely, and ensuring the relationship is based on national sentiment, rather than non state actors.
Ahmed Tabaqchali’s comments, opinions and analyses are personal views and are intended to be for informational purposes and general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any fund or security or to adopt any investment strategy. It does not constitute legal or tax or investment advice. The information provided in this material is compiled from sources that are believed to be reliable, but no guarantee is made of its correctness, is rendered as at publication date and may change without notice and it is not intended as a complete analysis of every material fact regarding Iraq, the region, market or investment.
[i] The code for Turkish Lira is TYR, but TL is used widely. https://en.wikipedia.org/wiki/Turkish_lira
[ii] The 12 months ending in March 2018 correspond to the Iranian year 1396. Iranian data are provided using this calendar.
[iii] Al Waleed crossing was freed by Iraqi forces in June 2017. https://www.reuters.com/article/us-mideast-crisis-iraq-syria/iraqi-forces-remove-islamic-state-fighters-from-vicinity-of-u-s-base-in-syria-idUSKBN19807Y
[vi] Arrived at by diving the value of exports by the year end value of the TL.
[vii] Iraq’s bargaining power is further enhanced if it links this with plans to double Kirkuk’s output over the next few yeaes
The Kurdistan Regional Government (KRG) exported an average of 550,000 bbl/d in 2017 until October 2017. After which they ranged between about 240,000-370,000 bb/d for an average of 311,000.
http://auis.edu.krd/iris/sites/default/files/Statehood in KRI through an Economic Lens_ FINAL.pdf pages 6 & 7, page 7 footnote 15.
Once again, we're not on the same page when it comes to exports. They posted a FAR LOWER figure than what we tracked. Off by half a million barrels a day, or >15 million barrels for the month. #OOTT pic.twitter.com/5wtBw3d3Rm
— TankerTrackers.com🛢 (@TankerTrackers) July 18, 2018
[ix] Although most of Jordan’s exports are currently value-add products. In 2016, Pharmaceutical Products accounted for 16% of total exports, Electrical & Electronic Equipment for 13%; Fertilizers for 12%; plastics for 11%. While Vegetable, Fruits & Nut food preparation accounted for only 2.3%, and Edible Vegetables, certain roots and Tubers accounted for 2.2% for a total under 5%.
[xiii] Table 3, page 79 ““A New Hope: Iraq Oil’s Way Forward” http://www.bayancenter.org/en/2018/02/1435/
Figures from the Ministry of Electricity show that available capacity, was 16.0 GW by end of July 2018, which does not include the lost Iranian supply. https://moelc.gov.iq/index.php?name=News&file=article&sid=4212
[xiv] This article explains the nature of the relationship and the history of the under-payments https://www.washingtoninstitute.org/policy-analysis/view/the-irgc-may-try-to-divert-iraqs-electricity-payments
[xix] Page 82 “A New Hope: Iraq Oil’s Way Forward” http://www.bayancenter.org/en/2018/02/1435/
[xxi] Page 82 “A New Hope: Iraq Oil’s Way Forward” http://www.bayancenter.org/en/2018/02/1435/
[xxvi] A recent report by the author covers this in further detail.http://www.iraq-businessnews.com/2018/06/15/forget-the-donations-stupid-new-dynamics-in-funding-reconstruction/
By Kamal al-Ayash.
As Iraq Sanctions Iran Trade, Saudi Arabia Boosts Border Crossing
Opening the Arar border crossing on Iraq’s border with Saudi Arabia could help locals economically. But analysts say it’s also about international influence.
“Work is underway to re-open Arar for commercial purposes before the upcoming Haj season in a manner that benefits both Iraq and Saudi Arabia,” said Abdul Aziz al-Shammari, the Saudi ambassador to Iraq. In a televised interview announcing that the border crossing is to be permanently opened, he said that the Iraqi and Saudi sides have agreed on everything required for the reopening of the crossing for commercial purposes.
This is not the first time that Saudi Arabia announced its approval for the reopening of the border crossing, and with every such announcement voices supporting normal relations with Saudi Arabia are heard. Local residents also say the border crossing opening will boost economic recovery in the area.
However, the issue of ownership of the border crossing remains a significant stumbling block: It is located within the borders of the Nukhayb district, approximately 300 kilometres southwest of Ramadi, which is in the Anbar province .
The Nukhayb district was created in 1960 and remained part of Anbar province’s Rutba district until 1978 when it was annexed to Karbala for 14 months. It was returned to the Anbar province in 1979 as a result of a crisis between the local population of the Nukhayb district and Ahmad Hassan al-Bakr, a former President of Iraq, after which it became a separate district in 2016, following a vote by Anbar provincial council members.
The Arar crossing point is located on the Iraqi-Saudi border, 97 kilometres southwest of the Nukhayb district, and since 2003 has officially only opened during the pilgrimage season so that Iraqi pilgrims can travel to the holy site of Mecca in Saudi Arabia. The border crossing has two routes; the first passes through the Karbala province and the second passes through the Anbar province.
The local government in the Anbar province highlights the success of its security and service operations every pilgrimage season, while at the same time stressing that this is done without financial allocations to the border crossing. It is also a way of confirming its ownership of the Nukhayb district and the Arar border crossing.
Taha Abdul Ghani, a member of the Anbar provincial council, told NIQASH that “no province other than Anbar has the right to administrate the Arar border crossing, as all documents prove that the Nukhayb district and Arar border crossing fall within the administrative borders of the Anbar province. Any other claim is a slander and a violation of Anbar’s rights.”
“Anbar province has administrated the Nukhayb sub district for 15 years. It allocated huge amounts of money to services and projects in the Nukhayb district in support of all sectors, as well as for logistical services to ensure the success of security plans and the travel of pilgrims through the Arar border crossing.”
In addition to its importance for commercial and tourism purposes, the Saudi-Iraqi border crossing is significant for various local and international political parties for political and security reasons. Observers and experts say that any developments related to the Nukhayb district tend to increase tensions and they stress that economic issues are not the only reasons.
“Controlling the Nukhayb district and the Arar border crossing from the Iraqi side has one specific reason,” retired military man, Mohammed Kartan explains. “Anbar wants to maintain the border crossing with its Sunni environment, specifically the Gulf, and Karbala and Najaf want to impose their control and influence to isolate Sunni elements from their support in the Gulf.
“Whoever controls the Jdaidet Arar border crossing and the Nukhayb district controls important transportation routes between Iraq and Syria that were created when the Islamic State group occupied most of the cities of the Anbar province. These routes were created in an attempt to find alternative ways to bring financial and logistical support to Syria without having to pass through extremist-occupied areas.”
The reopening of the border crossing could serve as an important outlet for Iraqi and Saudi trade, but it is a painful economic blow to Iranian trade, which heavily and directly depends on the Iraqi market.
Kareem al-Nouri, a leader of the popular crowd forces, told NIQASH that “if we assume good intentions on the part of Saudi Arabia, the decision to resume business permanently at the Arar border crossing is a good and useful decision which restores relations between Iraq and Saudi Arabia. However, we believe that the decision is of a political nature and its timing is not appropriate, especially with the US sanctions on Iran.”
“The opening of the border crossing, which is located in a sensitive and important city that is still categorised as a disputed area, could trigger a real crisis that may evolve into a conflict,” al-Nouri said. “Announcing the opening of the border crossing at this time is not a popular decision and it should be reconsidered.”
Petrofac has been awarded a contract worth around US$370 million by Basra Oil Company (BOC) for expansion of the Central Processing Facility (CPF), located in the Majnoon Field, Southern Iraq.
Under the terms of the 34-month contract, the lump-sum engineering, procurement and construction (EPC) project scope of work includes two oil processing trains, able to process 200 kbopd.
Petrofac was previously awarded a contract in 2011 and delivered engineering, procurement and construction management for the execution and completion of the existing CPF at Majnoon.
Elie Lahoud, Group Managing Director, Engineering & Construction – Iraq, Oman and Saudi Arabia, commented:
“We have developed a significant track record in Iraq with enhanced local delivery, successfully providing services both onshore and offshore since 2010. This important contract win demonstrates Petrofac’s long-lasting client relationships and our ongoing commitment to extending our operations in this key market that complements our broad service capabilities, international experience and expertise.”
Posted in Iraq Oil & Gas News Comments Off on Petrofac awarded Basra Oil Company EPC Contract
By Fazel Hawramy for Al Monitor. Any opinions expressed here are those of the author and do not necessarily reflect the views of Iraq Business News.
Will Riyadh-Tehran rivalry kill Iraqi Kurdistan’s investment drive?
Iraqi Kurdistan, facing an acute financial crisis, has a newfound opportunity to attract desperately needed foreign investment from Saudi Arabia, but regional tensions between Tehran and Riyadh could hamper its efforts.
A large Saudi trade delegation led by Sami Bin Abdullah al-Obeidi, chairperson of the Council of Saudi Chambers, and accompanied by the Saudi ambassador to Iraq and the consul general to Erbil, visited the Iraqi Kurdistan Region July 23-25, meeting with business leaders and government officials, including Prime Minister Nechirvan Barzani, to explore economic opportunities in the energy, agricultural, industry and tourism sectors.
Although no agreements were signed, the parties agreed to work toward expanding economic relations, as Saudi Arabia plans to establish a direct trade link from its Arar border crossing into Anbar province and on to the Kurdistan region.
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By Youssef Ali.
Any opinions expressed are those of the authors, and do not necessarily reflect the views of Iraq Business News.
President Donald Trump’s decision to pull out of the nuclear deal and sign the executive order to reimpose sanctions on Iran has had a significant impact on the global oil markets.
This move poses a severe threat to the economies of major oil exporting countries including Iraq, the second largest oil exporter in OPEC after Saudi Arabia and the third in the world after Russia and Saudi Arabia by 4.4 million barrel per day. Many analysts are reflecting on the effects that this conflict has on the economy of Iraq, which heavily relies on oil.
The sanctions mainly target the Iranian energy sector, which supplies Iran with foreign exchange and at the same time represents about 40% of revenues of its budget. The goal of the sanctions is to prevent Iranian oil exports by imposing sanctions on its customers.
Eliminating Iranian oil supplies will cause unrest in the oil markets around the world because it will lead to price surges, hence substantial economic losses on importing countries, which are already fearing a potential recession. That is why the U.S. tried to convince some of OPEC’s members to increase their supplies contrary to the recent deal amongst OPEC and non-OPEC countries to decrease production, and that in order to compensate Iranian supplies and prevent the disruption of the oil market to prevent damage to the global economy.
This move led to massive disputes between the major suppliers and pushed Iran to threat blocking oil exports from the Middle East altogether if it was to be prevented from exporting its own oil to the international market. If Iran follows through with its threat, it would mean massive losses for the Gulf countries, including Iraq whose economy is primarily depended on oil exports.
That said, completely stopping Iranian oil exports would be practically unlikely for the following reasons:
The nature of oil markets which is volatile and is based on trust. If the OPEC members in the Gulf Region, especially Saudi Arabia and UAE decided to replace the sanctioned Iranian oil supplies, the possibility alone that Iran would follow through its threat of closing the Strait of Hormuz would diminish the trust in that market. The supplies which pass through the strait would be considered as unstable, importers would start looking for alternate sources. This would destroy energy markets in the Middle East, meaning massive losses to the economies of all parties involved, including neutral states such as Iraq.
On a global basis, the mentioned encounter will damage the international economy that is fearing a potential recession, because this encounter, if it happens will cause a massive increase in global oil prices, leading to a domino effect that would create a hike in the prices of many goods and services.
This is why it is expected that while the sanctions will be implemented, all parties involved will allow for under-the-table arrangements in order to avoid such mutual destruction by allowing Iran to open an limited channel to export its oil, as it has happened in the past. Prior to signing the nuclear deal, UAE oil brokerage companies and banks played such a role before they were shut down after the recent pull out of the nuclear deal by the U.S. Allowing for such back-channels would mean that the sanctions will have their impact on the Iranian economy by disrupting the traditional oil export routs and limiting its revenue, yet allowing for a backdoor deal that will help the international community avoiding a conflict that could have grave impact on the global economy.
There is a role for Iraq to play in this crisis. The current policy of Iraq in regards to this conflict, in which it is trying to mediate between the parties involved is a wise policy. It is in the interest of nobody to escalate the situation in the Gulf region. On the other hand, Iraq could, given the circumstances, gain enormous benefits by performing the same role that UAE brokerage companies and banks were playing, which would be a win-win for everyone involved.
In other words, Iraq can empower its private sector to establish companies and banks that facilitate the financial transactions related to the Iranian oil export, which would add important revenues to the economy of Iraq and increase the financial movement in the country; at the same time it would ensure the interests of Iran and decrease the likelihood of an encounter in the Gulf, which would serve the Gulf Arabs well.
Iraq must exploit this opportunity, especially since the Europeans countries along with Russia and China have already expressed their willingness to play this role. This opportunity could also be a significant incentive for Iraq to improve its ailing banking system to be able to implement such operation.
However, this is not possible without negotiating with the U.S. on this issue in order to avoid being subject of the sanctions. The U.S. has in the past exempted Iraq from the sanctions for dealing with Iran, given its special circumstances. The U.S. also has expressed its readiness this time to allow some exceptions. This could be Iraq’s chance to negotiate an arrangement that serves everyone well, at least for the short-term.
On the long term however, Iraq has to find alternate routes to export its oil in order to avoid the increasingly unstable oil routes of the Arabian Gulf. Viable solutions could be the Iraq-Jordan pipeline that would start in Basra and end in Aqaba. Iraq needs to accelerate building this pipeline. Another option is the rehabilitation of the Iraq-Syria pipeline that begins from Kirkuk and ends in Banias, which, of course, would only be an option if the security in Syria improves.
Iraq is either the core, or constantly caught in the middle of many crisis that are shaking the Gulf region. These reoccurring crisis pose huge obstacles in front of rebuilding and investment. If Iraq wants to survive them, it needs to play a constructive role and aim for stability and profit for all parties involved.
Posted in Iraq Oil & Gas News Comments Off on How Iraq Should Respond to the Strait of Hormuz Crisis
By John Lee.
The spokesman for the Ministry of Electricity, Dr. Musab Sari al-Mudaris [Mussab Serri al-Mudaris] (pictured) has denied reports that he had told Bloomberg about an agreement to buy electricity from Saudi Arabia.
He said the statement from the news agency is incorrect.
Bloomberg had cited Mudaris as saying that Saudi Arabia agreed to build a 3,000-megawatt solar power plant in Saudi Arabia and sell the electricity to Iraq at $21 per megawatt-hour, a quarter of what it paid Iran for the imports.
Iran recently stopped supplying electricity to Iraq due “the accumulation of debts owed by Baghdad“.
(Source: Ministry of Electricity, Bloomberg)
Posted in Iraq Industry & Trade News Comments Off on Electricity Ministry Denies Saudi Solar Power Deal
By Mustafa Habib.
Iraqi Internet Shuts Down, Fake News Blossoms During Information Blackout
When it came to disinformation, shutting down the Internet to prevent protests in Iraq may have backfired. Iraqis get most of their information from social media and there was none, so false reports circulated wildly.
On June 14, the Iraqi government shut down the Internet in an effort to try and prevent the spread of anti-government protests. The demonstrations, which called for better state services, power and water, had spread from the southern city of Basra to nine other provinces, including Baghdad. And clearly the government wanted to prevent them from going any further.
For the past few years, these types of protests have broken out every summer. In stifling heat rising to 50 degrees Celsius, the lack of power to refrigerate foods or keep houses cool and the fact that water coming out of the taps is salty, is enough to drive Iraqis to protest. But these demonstrations spread further than previous years.
And one imagines that the Iraqi government was trying to prevent the spread of information about the protests, in order to contain them. They are able to block the Internet thanks to the fact that most of infrastructure used for relaying the Internet is government-owned.
However the Internet blockage seemed to only frustrate Iraqis further. Locals here rely heavily on social media to get their news; they tend not to trust local media, believing it to be partisan or funded by interested parties who push their own agenda. What friends and relatives post on Facebook has become a major and important source of information – and when the Internet is down they obviously cannot access this.
So locals found themselves watching TV to get more information about the protests or resorting to VPN – virtual private networks – to access the online world. Iraqis have become accustomed to using this kind of software when the government shuts down, or throttles the Internet here, but as digital privacy experts point out, these too can be dangerous, especially with regard to privacy.
Clearly Iraqis right around the country were interested to know more about the protests. But pictures and videos were hard to come by, given the Internet shutdown. This led dozens of Facebook pages, specializing in Iraqi news and current affairs, to write up stories about the protests – but as they did, they also used older pictures and videos and many ended up publishing unsubstantiated rumours.
Iraqis who sympathized with the demonstrators didn’t just publish news reports on their pages, they also uploaded pictures and videos to Facebook – some of these were real and some were not. News organisations, like NIQASH, received these kinds of items via messages from people who appeared to be private citizens; however, due to the Internet shutdown, it was difficult to verify the content that was being sent and some of it was certainly not from the current demonstrations.
In fact, as Internet-rights activist and head of the Ansam Network, Haidar Hamzouz, says, the Internet blockade may well have had the opposite of the government’s intended effect. “Shutting down the Internet is a violation of the freedom of expression,” Hamzouz told NIQASH. “And the decision to do this was not the right one – it actually contributed to the spread of false news and it also became very difficult to inform anyone that certain items were false news.”
It seems that in Iraq, as elsewhere in the world, false reports and emotion-generating half-truths spread far faster than the truth.
Even though the government owns the public broadcaster, Iraqi Media Network, and they have huge resources, they still have not been able to stop the spread of these false reports and rumours, Hamzouz says. “We need institutions that are capable of relaying the facts and combatting fake news, rather than those who just shut down the Internet,” he argues. “Combatting fake news and untrue reports requires a change in the communal culture, one that values verification and checks sources. Unfortunately this doesn’t yet exist in Iraq,” he notes.
One of the more dangerous pieces of false news involved reports that the security forces, who were clashing with the demonstrators in the south, were actually from elsewhere, and more specifically from Anbar and Mosul. The message was that Sunni Muslim soldiers – who mainly come from central and northern Iraq – were abusing Shiite Muslim protestors, who mainly live in southern Iraq. It was clearly a report aimed at fuelling sectarian conflict.
“It is so unfortunate that this news incited hatred against us,” says Ali al-Rubaie, a police captain based in Rustafa, Baghdad. “The members of the security forces who were deployed to the protests were actually residents from the same cities. Each province has its own police and counter-terrorism forces. It would be impossible to do that job with troops from outside of the provinces in which the protests occurred,” he argues.
Additionally when the protests first started, news that the demonstrators were clashing with Iraqi security forces spread fast. But given the internet blockade, it was difficult to find pictures from incidents. One picture that was shared many times shows an Iraqi soldier pointing his gun at an unarmed civilian lying on the ground. However the picture was actually taken during a military training exercise in 2014, organized for a military training graduation ceremony in Karbala.
Another dangerous piece of news had Talib Shaghati, the head of Iraq’s special forces troops, commenting on the clashes between the demonstrators and the security forces. “This is not our battle and we will not stain our hands with the blood of our sons and brothers for the sake of some corrupt officials,” Shaghati was alleged to have said in a statement that was widely circulated on social media.
The same report said that Shaghati had been asked to send his troops to the protests but he had refused, and that he had asked the government to listen to the demonstrators’ demands before it was too late. Thousands of Iraqis believed this report and some even said that there should be a military coup because it was clear that the protests had no impact on the government, and the military were on the protestors’ side.
The US was not coming to the rescue either: One report said that US president Donald Trump had said his government was keeping a close eye on the protests in Iraq. This was followed by video footage of two military divisions landing at Baghdad airport. None of this was true: The video was an old one.
Saudi Arabia was not coming to the rescue either. As the protest movement gained momentum, its critics were divided. Some said Iran was behind the protests because the neighbouring nation was going to stop supplying power to Iraq. Others said Saudi Arabia was at fault and was pushing people to demonstrate in order to cause chaos in Iraq.
One of the obviously false reports was started by a page on Facebook called Saudi News. It said that Saudi Arabia’s ruling monarch had ordered water lines and electricity transmission lines to be built urgently for the southern parts of Iraq. The report spread quickly throughout Iraqi social media despite its fanciful nature.