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As Bahrain declares a three-month state of emergency, and invites troops from Saudi Arabia and other Gulf states to help quell the protests, the effects of that particular unrest are being felt strongly in Iraq.

Despite having plenty of local issues to complain about, thousands on Iraqi have responded to calls from Moqtada al-Sadr to take to the streets in protest at Bahrain's heavy-handed reaction to peaceful demonstrations.

Within the administration, Prime Minister Nouri al-Maliki has voiced his concern that the protests will inflame sectarian tensions, while Speaker Osama Nujaifi and Foreign Minister Hoshyar Zebari will meet on Thursday to consider an official response.

Meanwhile, we are 17 days into al-Maliki's 100-day deadline for reforms at home; while this was an ultimatum to his ministers, Deputy Prime Minister Saleh al-Mutlaq has suggested that Maliki himself should step down if the government fails to meet the 100-day target to improve.

But with oil prices remaining high, even after recent falls, the indications are that Iraq will at least have more revenue available to fund these badly-needed improvements.

For more information on how Upper Quartile and AAIB can assist your business in Iraq, please contact Gavin Jones or Adrian Shaw.

By Ahmed Mousa Jiyad, Norway, 7th March 2011.

Recent data on Rumaila production for the period 26 December 2010 to 27 February 2011 indicates that after achieving the 10% threshold over the baseline production, daily production dropped sharply to the extent that in few days, production levels were lower even than the baseline production.

The purpose of this intervention is to provide a few comments on the issue taking into consideration the related provisions of the contract.

1. The contract provides that the contactors (BP/CNPC +SOMO) are entitled to begin recovering cost and remuneration fee once they achieved 10% over the contracted baseline production for 30 consecutive days.
2. For Rumaila the contracted baseline production is 1.066 million barrels per day (mbd), and hence the threshold for commencement of cost and remuneration fee is 1,172,600 barrels (the red line in the following chart).
3. The actual payment to the contractor is limited to 50% of the “deemed revenues” for petroleum cost and remuneration fee, and 10% of the “deemed revenues” for the supplementary cost.
4. Daily production data from Rumaila seems to satisfy the condition of 10% over the contacted baseline production for 30 consecutive days until 31^st January 2011, as shown by NO (daily production rate) curve in the chart. Hence the contactor is entitled to apply the cost recovery modality. Average price for Basra crude during January was $93.37 (assumed to be the FOB price), which gives a total of $151.7 million as cap for payment to the contractor from the deemed revenues of the incremental production for the period 11 to 31 January (which the daily production data are officially available). If one assumes average daily production for the first 10 days in January is equal to the daily average of the remaining days of January, then the contractor share for the whole of January would be ca. $224 million for remuneration fees and cost recovery.Total incremental production (over the baseline production) during January is estimated to be 3,997,524 barrels, giving BP/CNPC a maximum remuneration fee of $3,897,586 (after deducting SOMO’s share and the income taxes). The remaining amount of ca. $223 million represents 14.9% or 13.1% of the budget for 2010 work programme, which was reported to be $1.5 or $1.7 billion.
5. During February, daily production fluctuated with 12 days below 1,172,600 barrels threshold including 4 days with daily production even lower than the baseline production itself, while the remaining 15 days are above this threshold. However, since the downward production was deep the average daily production in February was 1,155,593 barrels, which is only 8.4% over the baseline production. Even if we apply the contracted annual decline of 5% per annum, this would not make for the difference of 1.6% for February underperformance. This implies that the IOCs have failed to sustain the 10% over the contracted baseline production, and this disqualifies IOCs from recovering their cost and remuneration.
6. It appears, as anticipated by many including myself, that IOCs would attain the 10% threshold over baseline production to invoke cost and fees recovery without insuring sustainability of the increase by applying short terms mechanical or technical modalities instead of the advanced enhance recovery methods. BP/CNPC uses contract for the supply and servicing of Electrical Submersible Pumps (ESP), which was split between two companies, Baker Hughes gets 60% of the work while Saudi Al-Khorayef Petroleum Co., has the remaining 40%. ENI, last year done some debottlenecking (at Zubair oilfield), reducing pressure here, re-perforating there; it is not really sustainable – they have some work to do (as Thamir Ghadhban said to IOR on 9 December 2010)
7. The Ministry of oil, SOC and Iraqi oil technical/professionals are expected to address this issue openly, accurately and professionally as the problems of the concluded contracts began to surface loud and clear, and remedial prompt and effective actions are required. It is vital that an annual report on Rumaila, and for that matter on all other contracted fields, is published and posted on the websites of MoO and SOC (and other ROCs) to outline what has happened to the Work Program and its Budget. Oil and Energy Committee in the Parliament should also have its say on such matters.

Ahmed Mousa Jiyad, [email protected]

Mr Jiyad is an independent development consultant, scholar and Associate with Centre for Global Energy Studies-CGES, London. He was formerly a senior economist with the Iraq National Oil Company and Iraq’s Ministry of Oil, Chief Expert for the Council of Ministers, Director at the Ministry of Trade, and International Specialist with UN organizations in Uganda, Sudan and Jordan. Jiyad is regular contributor to MEES publications. He is now based in Norway. (Email: [email protected]).

Japanese auto-maker Nissan has opened its main sales office in Iraq in the capital of the Kurdistan Region, Erbil.

Nissan becomes the second major Japanese car manufacturer to have an office in the Kurdish capital, after Toyota.

Sardar Cars Group will be the sole agent for Nissan in Iraq which has based its office in Erbil city, Sardar Cars’ sales manager Hasan Makiya told AKnews.

“From now on, the various Nissan vehicles will be imported to Iraq only by Sardar Cars” said Makiya, “In the near future, 2,000 Nissan vehicles comprising of 7 models with spare parts will be imported to Iraq”

The office is also likely to be a major support center for Nissan vehicles. “There is a probability that the office will be responsible in the future for Nissan’s technical repairs.”

Nissan, with its range of vehicles from passenger cars to powerful 4x4 series and commercial vehicles, is one of the most popular automobile brands in Iraq and in particular in the Kurdistan Region. Its history in the Middle East dates back to 1957 when the first Nissan vehicle was sold in Saudi Arabia.

(Source: AKnews)

The demonstrations seen throughout Iraq over the past two weeks have so far had no discernable effect on the ISX. As of February 24, the RSISX index had risen 19% year-to-date to a new high for the year. Iraq is now the region’s top performer.

This strong performance is not hard to understand. In contrast to their counterparts elsewhere in the region, Iraqi demonstrators are not advocating radical political change. Indeed many of the reforms people have been calling for in other countries occurred in Iraq years ago following the overthrow of Saddam Husein. Nor, given the continuing influence of the United States, is the army likely to take advantage of the situation by staging a military coup, as appears to have been the case in Egypt.

At the moment, there doesn’t really seem to be that much potential for political instability. And investors long inured to mass casualty terrorist attacks can hardly be expected to turn bearish following the deaths of a relatively small number of protestors.

The relationship between protest movements and the year-to-date relative performances of regional markets is in any case not entirely straightforward. (See chart. Red bars indicate countries where demonstrations have occurred.) As you might expect, Egypt and Tunisia have been the worst performers. But the UAE and Turkey, which so far have not had any demonstrations, have fared worse than Kuwait and Jordan.

Or consider Bahrain and Saudi Arabia. The former is still up 0.5% year-to-date, despite a violent crackdown on Shia protestors demanding concessions from its Sunni ruling family. The latter has so far been an oasis of calm. Yet the Saudi market is nonetheless down 5%, apparently in part because of the risk that Bahraini unrest could spread across the causeway connecting the two countries!

Like Iran, the region’s second best performer, limited links to the international financial system make the ISX relatively immune to contagion from other markets. The main effect of regional disturbances on Iraq so far has been a rise in oil prices. As long as this continues to be the case, while events may trigger occasional corrections the bull market should remain solidly on track.

Dubai contractor Drake & Scull International is eyeing project tenders in Iraq in the second half of 2011 as it looks to break into new markets and diversify its income.

Drake, whose biggest market is Saudi Arabia, is also keeping a close eye on political unrest in Egypt, where it is bidding for $200-300m worth of projects, chief corporate affairs officer Zeina Tabari told Reuters in an interview.

Drake, which specialises in mechanical, engineering and plumbing businesses (MEP), won a $126.6m contract in Egypt in January, and the project is on track, Tabari said.

"The majority of our contracts this year will be from the GCC," she said, adding: "We have a business development team in Iraq, but it is a new market for us and will take some time to start tendering. Probably in Q3 and Q4."

Gulf Arab companies see growing opportunities to invest in Iraq in sectors including energy, telecoms, finance and infrastructure, as the war-torn nation battles to recover from years of bloodshed.

Drake has been rapidly expanding its operations outside Dubai, where house prices have plunged some 60 percent since their peaks in 2008 as a result of the financial crisis.

(Source: Reuters)

Iraqi oil output will double in the next decade, not quadruple as in initial government targets, but the country could still test Saudi Arabia's influence in OPEC, oil major Shell said on Monday.

In its energy scenarios to 2050, published for the first time since 2008, Shell said Iraq was a key uncertainty in the oil supply picture, with output likely to reach 5-6 million barrels per day over the next decade if reasonable stability and security are achieved, according to Reuters.

Iraq's previous government had said partnerships with oil and gas companies including Shell could push output to as much as 10-12 million bpd.

"This would mean annual growth rates of 10-15 percent would have to be sustained for at least 10 years -- a feat unseen in recent history," Shell said.

Shell said that in the medium term, a balance must be struck between ramping-up production quickly for Iraq to generate income and avoiding over-supply so that OPEC can manage its spare capacity buffer adequately.

"Key to price volatility will be OPEC's spare capacity levels, its adherence to agreed quotas to limit production during periods of weak demand and continued market perception of medium to longer-term supply-demand tightness".

The Iraqi Communications Ministry has signed a preliminary agreement with the Saudi company STC to link Iraq to Turkey and Saudi Arabia by an optical cable system.

Official ministry spokesman Samir Ali Hassoun told AKnews that this initial agreement determines the financial aspects of the deal.

The Ministry of Communications has been working for a long time on extending the existing optical cable network to provide advanced electronic communications in the country in the near future.

The internal structure of the Iraqi telecom network was badly damaged in April 2003 during the violence and looting that followed the US-led toppling of the former regime.

(Source: AKnews)

With a year-to-date return of 14.6% as of February 7, the Rabee Securities RSISX index is the region’s second best performer so far this year. Only Iran’s TEPIX index, up 16.4%, did better.

Regional stock markets have generally mirrored the lackluster performance of the Morgan Stanley global emerging markets index, which is down 1.8% year-to-date. The main headwinds, both in the region and around the world, are coming from the threat of rising inflation and higher interest rates. For all the talk of political uncertainty following the protests in Egypt, these have had little impact so far. Markets like Saudi Arabia and Jordan initially took big hits on the Egypt news, but most of those losses have since been made up.

While Iran and Iraq have had similar returns so far, the two countries face dissimilar macroeconomic situations. The Iranian economy is hampered by international sanctions and declining oil production, while year-on-year food price inflation reached 18.9% in December (the last reported month). This compares to the situation in Iraq, where foreign investment is growing rapidly, oil output is expected to double or triple over the next decade and December CPI was only 3.3%.

The two stock markets are quite different as well. The Tehran Stock Exchange has been operating since 1967, has a market capitalization of about US$ 90 bn and 420 listed companies. The history of the Iraq stock exchange only goes back to the mid-1990s. So far there are fewer than 100 listed companies with a combined market cap of around US$ 2 bn.

And the Iranian market has already been rising for quite a while. It was up 68% in 2010. The ISX ended last year basically flat. Its bull market has only just begun.

It shouldn't be hard for Iraq to take over the top spot.

The Grain Board of Iraq (Ministry of Trade) has announced another tender on Monday for the supply of 100,000 tonnes of grain.

Some experts cite this tender as a factor in the 1.6% jump in grain prices on Monday. Reuters quotes Brett Cooper, senior manager for markets at FCStone Australia, as saying:

"Iraq has tendered for wheat and there is speculation in the market that Iraq will buy more wheat than what it has tendered. There is talk Turkey and Saudi Arabia will issue tenders soon."

The deadline for bids is 10:00 am Baghdad time on 12th February, and if the English version of the documents are correctly translated, interested parties must visit the Grain Board’s offices in Baghdad.

Please click here to download the tender document.

General Motors's sales in the Middle East rose 26 per cent in the fourth quarter, compared with the year prior, helped by big gains in Iraq, the company announced on Wednesday.

The carmaker sold 123,258 vehicles in the Middle East in 2010, up 5.5 per cent from the previous year, according to a report in The National.

But sales picked up pace in the final quarter, with 38,450 Chevrolet, Cadillac and GMC vehicles sold across the region, up 26 per cent from the same period in 2009.

Its fastest growing market last year was Iraq, due to increased political stability in the country, said a GM spokesman.

Sales in Iraq in 2010 rose 52 per cent, year on year. But in the fourth-quarter, GM's sales in Iraq rose by 112 per cent compared to the same period one year earlier.

"It's mainly the stability... in 2007 we started seeing the country becoming more and more stable, and sales have been picking up," said the GM spokesman. "There is a correlation between the two."

Saudi Arabia continued to be GM's biggest regional market, by sales, due in part to its relatively large population. Sales in the Kingdom rose by 7 per cent year on year, and 28 per cent in the fourth quarter, compared to the same timeframe in 2009.

Sales in Kuwait and the UAE, the other two large markets for GM in the Middle East, remained flat compared to 2009, the spokesman said.

Cadillac was GM's fastest growing brand in the Middle East, with sales up 26 per cent year on year. Chevrolet sales were up 9.2 per cent year on year, due in part to new models including the Cruze and Malibu. GMC remained flat over the year.

(Source: The National)