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By Simon Watkins for the OilPrice.com. Any opinions expressed are those of the author(s), and do not necessarily reflect the views of Iraq Business News.

Iran Moves To Consolidate Its Grip On Iraq's Oil Sector

Iran has long held enormous political, economic, and military sway over neighbouring Iraq through its various military and political proxies, and since the discovery of vast reservoirs of oil in Iran first in the early 1900s and shortly after in Iraq, Tehran has an added incentive to retain this influence and to enhance it.

With Iran's longstanding former superpower ally, Russia, now looking to build out its remaining influence south of Europe, there is another reason for Iran to strengthen its ties with Iraq.

Click here to read the full report.

By Elena Mataro for Argus Media. Any opinions expressed here are those of the author(s) and do not necessarily reflect the views of Iraq Business News.

The EU's ban on Russian seaborne crude imports has opened the door to an increased flow of sour Middle East grades into the Mediterranean.

Iraq's Basrah grades have already emerged as a popular alternative to medium sour Urals, with many European refiners shunning Russian crude months ahead of the embargo.

Click here to read the full article.

Iraq: EU allocates additional €4 million in humanitarian funding to help vulnerable facing food insecurity

Political instability, climate change, as well as rising food prices, spurred by the drought and further aggravated with the Russia's unprovoked aggression towards Ukraine, has left many vulnerable Iraqis not able to meet their basic needs.

The funding announced today will help the most vulnerable people, particularly those internally displaced and living outside camps in informal settings in Iraq, to meet their basic needs.

Commissioner for Crisis Management, Janez Lenarčič said:

"More and more vulnerable people, especially displaced, are being affected by the increasing food insecurity in Iraq. Russia's war against Ukraine is having an impact on many lives across the world, especially on people who are already facing hardship. The EU is committed to help those who are in need. This is why we allocated an additional €4 million to help Iraqis in need get through this difficult time. "

The funding will help to support up to 4,000 displaced vulnerable families with monthly cash assistance as they go through the process of obtaining identity and civil documentation. In addition, cash assistance will also benefit up to 1,000 families with a chronically ill member, who are no longer able to meet their essential needs.

Since 2014, the EU allocated €530.5 million in humanitarian aid to help people in Iraq.

(Source: ECHO)

By Simon Watkins for the OilPrice.com. Any opinions expressed are those of the author(s), and do not necessarily reflect the views of Iraq Business News.

Iraq's New Prime Minister Doubles Down On Oil & Gas Deals With China And Russia

It is possible that U.S. Secretary of State, Antony Blinken, believed for a moment that his call to the new Iraqi Prime Minister, Mohammed Shia al-Sudani, saying that Washington "is eager to work with the government and people of Iraq to improve respect for human rights, increase economic opportunities, advance Iraq's energy independence, and address the climate crisis" might resonate in Baghdad.

A moment only, however, as it transpires that key deals long planned between Iraq and China and Russia are to go ahead, regardless of U.S. wishes.

Click here to read the full report.

By John Lee.

More than 100 representatives of leading Iraqi and Russian businesses took part in the Russian-Iraqi Business Forum in Moscow last week.

According to a press release from The Chamber of Commerce and Industry of the Russian Federation, the Ambassador of Iraq in Moscow, Mr. Abdurakhman Al-Husseini, told delegates that Iraq is open to the development of business relations in all areas. This is not only the oil industry, but also various areas of industry, trade, and healthcare. The Iraqi ambassador also reminded that any Russian can apply for a visa at the airport upon arrival in Iraq.

The President of the Federation of Iraqi Chambers of Commerce and Industry, Abdurazzak Al-Zuheiri, speaking on behalf of the head of the Iraqi delegation, said there was a great desire to promote and strengthen Russian-Iraqi business relations, in particular, in the field of energy, construction, and food supplies.

Ali Warid, Director of the Technical Department of the Iraqi Oil Ministry, noted the long-standing Russian-Iraqi ties in the oil industry. According to him, they are only getting stronger, and most of the projects implemented by large Russian companies in Iraq are economically successful. Among the areas of development, Ali Varid outlined not only exploration, production, but also processing of oil and oil products.

Abbas Salim Hussein, Director of the Livestock Development Department of the Iraqi Ministry of Agriculture, spoke about the specifics of doing business in Iraq in his industry and called for developing cooperation in the poultry, meat, dairy and fish industries.

Aziz Nadim Al-Isa, director of the Industrial Development Department of the Iraqi Ministry of Industry, said that since 2003, the Iraqi economy has completely changed and has taken a course towards attracting investment in industry. The country is implementing 25 strategic technological development projects. He stressed that Iraq is interested in cooperation with Russia, primarily with high-tech companies.

Concluding the plenary part, Maksim Malyarchuk, Executive Director of the Russian-Iraqi Business Council at the Chamber of Commerce and Industry of the Russian Federation, spoke about the activities of the Council and assistance to Russian and Iraqi companies in the new conditions. In March, the Central Bank of Iraq banned settlements with the Russian Federation. But, despite this, according to Malyarchuk, today there are examples of direct deliveries from Russia to Iraq, and the issues of mutual settlements and logistics have been conceptually resolved. Also, he noted the growth of requests from the Iraqi side and the interest in importing Russian products.

(Source: The Chamber of Commerce and Industry of the Russian Federation)

By John Lee.

Iraq's Minister of Oil, Ihsan Abdul Jabbar Ismail, has stressed the importance of developing the Eridu (Arido) oilfield in Block 10, which is in the Muthanna and Dhi Qar provinces.

This came during a meeting with Lukoil's Vice President for Central Asia, Middle East, and North African affairs, Stepan Gorgi, and his accompanying delegation.

The Minister said that the ministry is awaiting the approval of the Council of Ministers of the joint development program for the field, commending the technical study of Lukoil.

He added the need to continue the development of West Qurna 2 field, and commended the cooperation between the Ministry and Lukoil to develop oil and energy sector.

The meeting was attended by the Senior Vice President of National Oil Company (INOC), Hamid Younis, the Director General of Petroleum Contracts and Licensing Directorate (PCLD), Ali Maarij. On the Russian side, the meeting was attended by Lukoil General Manager, Alexey Yakovlev, and the 10th block project manager, Edward Tcheloyansh, and vice manager of Iraq branch, manager of Lukoil reprentative office in Baghdad, Resan Sednavi.

(Source: Ministry of Oil)

By John Lee.

An official at the Russian Foreign Ministry has reportedly said that Russia is ready to supply Iraq with "isotope products", and to assist Baghdad in the field of non-energy nuclear technology.

According to RIA Novosti, Alexander Kinshchak, the Ministry's Director for the Middle East and North Africa, added that Russia's Rosatom and the Iraqi Agency for the Control of Radioactive Materials are working on a memorandum of understanding regarding cooperation in the peaceful use of atomic energy.

He noted that Russia is also ready "to implement major joint projects" with Iraq.

(Source: RIA Novosti)

By John Lee.

Mustafa Ghaleb Mokhif, the Governor of the Central Bank of Iraq (CBI) has met with the Russian Ambassador to Iraq, Elbrus Kutrashev, to discuss the payments due to Russian companies operating in Iraq.

In a statement after the meeting, both parties expressed the need to find appropriate solutions to this issue.

Payments to Russian companies have become more complicated as a result of sanctions imposed following Russia's invasion of Ukraine in February.

(Source: CBI)

From Amwaj Media. Any opinions expressed are those of the author(s), and do not necessarily reflect the views of Iraq Business News.

What the Russia-Ukraine war means for Iraqi Kurdistan

Russia's invasion of Ukraine has had wide-ranging economic, political, and social consequences around the world, including in Iraqi Kurdistan.

Food and fuel prices have increased dramatically since the conflict began in February, and supplies of medicine imported from Ukraine have threatened to run short.

Kurdish students studying in Ukraine have also had to return home.

Additionally, with Europe facing natural gas shortages, plans to export the vital fuel from the Kurdistan region have exacerbated political tensions within Iraq.

Always vulnerable to the vagaries of geopolitics, Iraqi Kurdistan is likely to feel the reverberations of the Russia-Ukraine war for the foreseeable future.

The full report can be viewed here (registration required).

By Ahmed Tabaqchali, Chief Strategist of AFC Iraq Fund.

Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

Supplementary Budget Stabilises the Market

The market, as measured by the Rabee Securities RSISX USD Index, was up 3.4% for the month, and up 5.1% for the year.

The last two months of profit-taking continued into the first week of June, at which point it was halted by the passage of the supplementary budget bill on June 8^th. This in turn stabilised the market, whose technical picture continues to be positive, as its two-month decline has only taken it to within the middle of its two-year up-trending channel (chart below) - an uptrend that ended a brutal multi-year bear market.

While there is the potential for the market to resume its decline, the macroeconomic fundamentals discussed here two months ago support thesis that the two-year uptrend should continue even if the upward slope moderates somewhat.

This picture contrasts favourably with the majority of global markets, which underscores Iraq's attractive risk-reward profile and diversification benefits versus these markets, especially considering that Iraq's economy, unlike most economies worldwide, is a significant beneficiary of the current high oil price environment.

(Source: Iraq Stock Exchange, Rabee Securities, AFC Research, data as of June 30^th)

Passage of the Supplementary Budget Bill

The delays in government formation, following the parliamentary elections on October 10^th, meant that the current caretaker government, lacking the authority to propose a 2022 budget, was restricted to spending 1/12^th of the 2021 budget on a monthly basis in 2022. While the 1/12^th spending rule allowed the government to continue funding its current expenditures (salaries, pensions, social security and the provisioning of goods and services), and some of the investment spending that was initiated in 2021; it nevertheless prevented it from fulfilling its continuing investment spending requirements. Crucially the 1/12^th rule prevented the government from using the bounty of higher oil prices in alleviating the harmful effects of the sharply increasing food prices on the population. The supplementary budget, in combination with the 1/12^th spending rule for 2021, would in effect be in lieu of a 2022 budget. As such the total effective budget for 2022 would be about USD 92 bn, an increase of 23% above that for 2021; and made up of the 1/12^th rule spending allocation of about USD 75 bn for 2022, and the supplementary budget's spending allocation of about USD 17 bn.

The supplementary budget bill, officially called the "Emergency Food Security Support" bill, has its origins in demands by parliament for extra spending measures in response to public anger over the increased cost of living, and to public pressure for the government to translate the sharply rising oil revenues into public expenditures. However, the bill's passage was almost imperilled by the Federal Supreme Court (FSC) ruling, in mid-May 2022, that the government lacked the authority to present a supplementary budget bill to parliament, essentially ruling that in proposing a supplementary budget bill to parliament, it was attempting to circumvent its lack of authority to present a full budget bill. Parliament's dilemma was that although it was able to propose legislation, such legislation should not have any financial implications, which prevented it from proposing its version of the supplementary budget. However, the political class's ingenious solution was arguing that if a proposed legislation was not objected to by the government, then it can propose legislation with financial implications - which it did by legislating its own version of the supplementary budget bil, which was welcomed by the government.

The government has the wherewithal to fund the supplementary budget and still build a substantial budget surplus that it, or a future government, can utilise to continue pursuing expansionary budgets. Iraq's oil export sales are estimated to be at USD 117 bn for 2022, if Brent crude prices were to average USD 100 per barrel (/bbl) for the year as discussed here. Contrasting oil export sales with estimated spending for 2022 of USD 92 bn provides an idea of the expected budget surplus after accounting for the government's non-oil revenues as well. Iraq's extreme leverage to oil is manifested in the translation of every USD 1/bbl change in Brent's average price for the year, into about USD 1 bn in oil export sales, and as such in the current high oil prices environment, there is an upside to Iraq's oil export sales estimates. Given that the year-to-date average for Brent crude is about USD 106/bbl, and that Brent future contracts imply an average of USD 111/bbl for the balance of the year, then Brent crude would average USD 109/bbl in 2022 leading to about a USD 9 bn upside to Iraq's oil export revenue estimates (chart below).

However, there is also downside to Iraq's oil export revenue estimates stemming from the inhibiting effects of higher oil and food prices on the world economy, and consequently lower global demand for oil. Magnifying these growth inhibiting effects would be the almost synchronized interest rate increases by central banks worldwide to combat the inflationary effects of the higher oil and food prices. Conversely, the changing world order following the invasion of Ukraine, and the extent of and likely extended duration of the sanctions imposed on Russia, will alter the dynamics governing the relationship between world economic growth and global oil demand. In the short and medium terms, Western governments' need to lessen dependence on Russian oil, and to ensure their energy security, would mitigate the negative effects on global oil demand from weaker world economic growth. All of which should lead to sustained period of higher oil prices as argued here in "Oil and the Iraqi Economy", in which Iraq would be a major net beneficiary.

(Source: Iraq's Ministry of Oil, AFC Research estimates, projections are based on assumptions of average Iraqi oil price at a USD 3.5/bbl discount to Brent crude as given by future contracts in investing.com, and the unwinding of the OPEC+ deal by September 2022. Data as of June 30^th)

The passage of the supplementary budget bill in June, means that most of the USD 17 bn of increased spending would be concentrated in the second half of the year, which in the process would inject sizable liquidity into the economy in a relatively short period. This in turn, should lead to a re-acceleration in the year-over-year growth in the amount of money circulating in the economy (broad money). The timing of the supplementary budget's passing came just as broad money growth is estimated to have slowed down significantly in May 2022, as the effects of the prior stimuli were exhausted after multiple months of sharp year over year increases. All of which underscore the centrality of government spending in the economy, acting as a super-efficient mechanism for transferring oil revenues into economic activities.

(Source: Central Bank of Iraq, AFC Research. Actual data as of the end of April 2022, AFC Research estimates for May 2022 based on actual data for the monetary base for May 2022)

Political Stalemate or Manoeuvring

The passage of the supplementary budget bill would prolong the current impasse over government formation into the near future, contributing to the political uncertainty following the surprising results of the October 2021 parliamentary elections as discussed in "Continued Momentum".

Increasing the political uncertainty, in the second week of June, the largest parliamentary bloc, and the apparent winner of the 2021 elections - the Sadrist Movement - resigned its seats in parliament in protest over the 10-month impasse over government formation. This was seen as an opportunity for the apparent loser in the election - the Fateh Alliance - to control parliament and ultimately government formation, however emerging internal conflicts within the alliance seems to be preventing this. Nevertheless, these developments, as dramatic as they might appear to be on the surface, could be part of the continued political manoeuvring of a very tortuous government formation process. This line of reasoning is rooted in the curious timing of the resignations immediately following the passage of the supplementary budget bill, which was championed by the resigning Sadrist Movement; and its passage in parliament was assured due to the large parliamentary block it commanded, before its resignation, with its partners.

It seems that the continuation of the status-quo, despite the continued political uncertainty, would be a preferred solution for all political parties, as it would preserve the country's ethno-sectarian parties' share of the state's resources achieved in the 2018 elections. While it's unclear if the status quo would continue for a few more weeks or months, or how it would the impasse over government formation be resolved; yet it's clear that the compromise over the passage of the supplementary budget bill would keep the wheels of government spending turning, and with that the lifeblood of the economy.

Conclusion

The market's benign response to the unexpected political developments in the month, and its continued positive reaction to the passage of the supplementary budget bill, supports the argument made above. Moreover, the market's action is similar to that following the late adoption of the 2021 budget in April 2021 - which at the time led to a continuation of its rally as discussed here in April.

While the political uncertainty would continue to dampen foreign interest in Iraq's equity market until the government's formation a few months later, Iraq's value proposition is compelling as its economy is a huge beneficiary of the high crude oil price environment. And its equity market is in the very early stages of emerging from a multi-year bear market, and as such its risk-reward profile is very attractive against most global markets.

[Updated 8th August, amending first chart.]

Please click here to download Ahmed Tabaqchali's full report in pdf format.

Mr Tabaqchali (@AMTabaqchali) is the Chief Strategist of the AFC Iraq Fund, and is an experienced capital markets professional with over 25 years' experience in US and MENA markets. He is a Visiting Fellow at the LSE Middle East Centre, Senior Fellow at the Institute of Regional and International Studies (IRIS), and a Senior Non-resident Fellow at the Atlantic Council. He is also a board member of Capital Investments, the investment banking arm of Capital Bank in Jordan.

His 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.