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By John Lee.

The Russian Direct Investment Fund (RDIF), Russia's sovereign wealth fund, has announced the approval of the Russian Sputnik V vaccine against coronavirus by Iraq's Ministry of Health.

Iraq has become the 45th country in the world to register Sputnik V.

The vaccine was registered under the emergency use authorization procedure.

(Source: RDIF)

By Ahmed Tabaqchali, CIO of Asia Frontier Capital (AFC) Iraq Fund.

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

Market Review: "Market Roars Back to Life"

The market, after January's 9.3% sell-off, resumed the rally that was ignited by the 22.6% devaluation of the Iraqi Dinar (IQD) against the USD in late December, ending February with a bang! The market, as measured by the Rabee Securities RSISX USD Index, ended the month up 25.7%, and is up 14.1% for the year.

February saw a resumption of the trends that drove the index's rally of 8.7% (in local currency terms) in the immediate aftermath of the currency's devaluation, in which both daily turnover and foreign buying increased meaningfully month-on-month.

However, the crucial difference this time is that these trends lasted the whole month, and their momentum was sustained throughout. Average daily turnover, excluding block transactions, increased 189% over the prior month and 145% over the average of the prior 12 months (first chart below). A similar pattern, but less dramatic, was the resumption of foreign buying in both absolute terms and as a percentage of total buying (second chart below).

(Source: Iraq Stock Exchange (ISX), AFC Research, data as of February 25^th)

While foreign buying in the leading names in the banking, consumer, and telecom sectors initiated the rally, it was local buying that extended and sustained it throughout the month. In particular, the Bank of Baghdad (BBOB) was up 69.2%, Baghdad Soft Drinks (IBSD) was up 30.7%, and AsiaCell (TASC) was up 24.6% - these three stocks accounted for over 90% of the index's gain and for the bulk of the daily turnover in the market.

Among the banking sector, BBOB's rally was joined by the low-priced Gulf Commercial Bank (BGUC) in which 4 successive increases in the minimum trading increment resulted in a 21.4% increase in BGUC. Other leading banks lagged significantly, such as Mansour Bank (BMNS) which was up 5.3%, the National Bank of Iraq (BNOI), up 2.4%, and the Commercial Bank of Iraq (BCOI), up 2.3%. While IBSD was joined by Al Mansour Pharmaceuticals (IMAP), up 15.2%.

The initial post-devaluation rally in late December and the strong follow-through in February suggests that that the market is primed for a rally following a brutal seven-year bear market - that even after its February gain, the market, as measured by the Rabee Securities RSISX USD Index, is still down by over 63% from its 2014 high.

The market's narrow breadth notwithstanding, the fact that the gains were made by the leading names in their respective industries is promising for the rally's continuation. For such a continuation to be sustainable, it should unfold over the next few months and come with a broadening of market breadth as other stocks begin to contribute to the market's recovery from its deep downturn. However, this recovery's pace is likely to be uneven with plenty of zigs and zags along the way.

It was argued here, post the currency's devaluation that:

"While the devaluation is an adverse event, the reaction of the equity market and the increased foreign participation indicates that the change is positive for equities. While the missing pieces of Iraq's re-rating are many and will take time to materialize, this positive reaction to the devaluation suggests that the event might start the process of Iraq's re-rating - which from a long-term perspective is positive for the equity market."

One of these missing pieces is the role that oil prices play in the foreign perception of Iraq contributing to foreign fund inflows, and more significantly, the role oil prices play in driving Iraq's economy and thus corporate profits.

Oil prices by the end of February staged a remarkable recovery of over 300% from the depths of the price collapse last April, in which the COVID-19 induced worldwide lockdown magnified an earlier crash in prices brought on by the price war between Russia and Saudi Arabia. This recovery was driven by the reversal of these same forces to hopes of a successful COVID-19 vaccination roll-out, and by extra production cuts over two-month of a further 1 mln barrels a day by Saudi Arabia, bolstering the remarkable cohesion of the OPEC+ agreement to cut oil production by an estimated at 12% of world oil supply last April 2020 - an agreement driven by self-interest and commercial logic just as was argued here last March soon after the initiation of the price war that:

"... while both combatants on paper have the resources to wage the price war, yet the effects of the 2014 price-war on both were profound which led to an unimaginable alliance in the first place. Given that effects of a new price war will be equally profound, it seems logical that political considerations will ensure that such war does not last, and that just as political reasons led to the price war, that subsequent ones will end it."

The availability of more than one effective vaccine for the COVID-19 pandemic bolsters the potential for a synchronised developed world economic recovery in the second half of 2021 and into 2022 - a recovery supported by unprecedented worldwide fiscal stimuli to the global economy, as well as continued adherence of OPEC+ to the production cuts - cuts that should last into year-end with a potential extension into 2022. This combination would argue for Brent crude prices to average in the range of USD 50-60 per barrel in 2021, and a range of USD 60-70 per barrel in 2022 - a case more promising than, but which nevertheless builds on the case made here in April 2020 that:-

"The known nature of the virus precludes a return to full normalcy when global lockdowns are expected to ease from mid-summer onwards. Combined with the unknown nature of the new normal as the world learns to deal with and ultimately contain the virus, the return to a pre-virus oil demand picture is unlikely within the next 12 months. But, in six to nine months demand for oil should recover from the extreme lows of April and trend upwards to a small drop from base-line demand by year end.

However, with a return to some sort of post-lockdown normalcy in early 2021, low oil prices should stimulate demand, and coupled with the massive worldwide fiscal stimuli to the global economy should begin to recover. Following a time-lag, as demand absorbs the stored supply, the supply-demand picture should be tilted in supply's favour, and oil prices will trend higher - likely to a price range of USD 45-55 per barrel for Brent crude."

Brent Crude Prices 2016-2021

(USD per barrel)

(Source: Bloomberg, data as of March 1^st, 2021)

Such a scenario is extremely positive for Iraq and its equity market given the country's extreme dependence on oil revenues, which historically constituted over 90% of government revenues. Given the dominance of the economy by the state - as the largest formal employer, and through its direct and indirect control of the largest economic activities - means that higher oil revenues will feed into increased consumer spending and to a revival in said economic activities.

Such a revival will sustain the recovery in economic activities that have returned to levels meaningfully above those that prevailed just before the nationwide lockdown last March, as seen from Google mobility data (below chart). In particular, activities in the crucial sectors of retail and grocery have recovered to between 20-60% above the levels that prevailed pre-lockdown. The sharp decline at the end of February is due to the new rolling lockdowns from Friday's to Sunday's, cutting the workweek to four days, in response to the emergence of a potential new wave of the pandemic.

(Baseline is the median, for the corresponding day of the week, during January 3^rd - February 6^th 2020,

Source: Google, data as of February 21^st)

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

Mr Tabaqchali (@AMTabaqchali) is the CIO 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 non-resident Fellow at the Institute of Regional and International Studies (IRIS) at the American University of Iraq-Sulaimani (AUIS), and an Adjunct Assistant Professor at AUIS. He is a board member of the Credit Bank of Iraq.

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.

By John Lee.

Iraq has reportedly "put on hold" it oil contract with China's Zhenhua Oil.

The multi-billion-dollar agreement would have seen Zhenhua pre-pay Iraq's State Oil Marketing Organization (SOMO) for a regular supply of crude oil.

Oil prices have risen significantly since the deal was struck.

More here.

(Source: S&P Global)

By John Lee.

The Dhi Qar Oil Company (DQOC) has reportedly said that Litasco, the international marketing and trading company of Russia's LUKOIL, will finance the doubling of capacity at the Nassiriyah oil field from 100,000 barrels per day (bpd) to 200,000 bpd.

The project includes a 42-kilometer pipeline, and will be a joint venture between the State Company for Oil Projects (SCOP) and Italy's Progetti.

(Source: Shafaq)

By John Lee.

Russia's Gazprom Neft has produced its four-millionth tonne (32-millionth barrel) of oil since starting commercial development of the Sarqala field in the Kurdistan Region of Iraq (KRI).

Three wells are now in operation at this field, with daily production running at about 3,100 tonnes (24,000 barrels) per day.

Limitations arising under the COVID-19 pandemic notwithstanding, Gazprom Neft Middle East B.V. is continuing to develop this field and is implementing a number of key production projects, including drilling a fourth well, the commissioning of which will increase production to 4,100 (around 32,000 barrels) per day. The commissioning of this well is scheduled for the first half of 2021.

Gazprom Neft Middle East B.V. is involved in this project with the Government of the KRI as part of the latter's development of the region's energy supply system. Associated petroleum gas (APG) produced at the Sarqala field will be used as fuel for energy facilities currently under development by government authorities.

This programme envisages the construction of a 4.5-kilometre gas pipeline to connect the field to power generation facilities. Implementing this project will not only increase APG utilisation at the field, but will also facilitate energy supplies to several districts within the KRI.

(Source: Gazprom Neft)

By John Lee.

Iraq has reportedly cancelled a contract to develop its Mansuriya gas field near the Iranian border.

Iraq Business News understands that, under a deal agreed in 2010, the field was being developed by Turkish Petroleum (TPAO) (37.5%), Iraqi Oil Exploration Company (25%), Kuwait Energy (KEC) (22.5%), and Kogas (15%).

According to Reuters, the consortium halted development in 2014 due to security concerns after the so-called Islamic State group overran large parts of Iraq.

Writing in Oil Price, Simon Watkins says "Russia has again made it clear that it is extremely interested in taking over the development contract of Iraq's Mansuriya gas field following the recent termination of the contract with a consortium led by Turkey's state-owned TPAO."

More here and here.

(Sources: Reuters, Oil Price)

The Prime Minister of Iraq, Mustafa Al-Kadhimi, and Iraqi Oil Minister Ihsan Abdul Jabbar Ismail, received a delegation from LUKOIL on Monday, headed by its President Vagit Alekperov (pictured).

The meeting was also attended by the Russian Ambassador Maxim Maximov.

The parties discussed the progress of the West Qurna-2 project and Eridu field (Block-10), as well as prospects for cooperation in other areas in Iraq.

Prime Minister praised LUKOIL's operations in the Republic and spoke in favor of expanding cooperation and coordination between LUKOIL and the Iraqi Oil Ministry.

(Source: Lukoil)

By John Lee.

The Ambassador of Republic of Iraq in London, Mr. Muhammad Jaafar Al-Sadr, chaired a meeting with representatives of the British pharmaceutical group, AstraZeneca, which is a leading company in Coronavirus vaccine in cooperation with the University of Oxford in Britain, through video conference.

The meeting discussed the possibility of Iraq obtaining adequate doses of the vaccine produced by the company that are being developed, in addition to the possibility of the early launch of the vaccine.

During the meeting, the Ambassador thanked the group for the efforts made by the company to produce the vaccine, which would be a scientific achievement to protect humanity from the risks of infection with the Coronavirus, stressing Iraq's desire to obtain the vaccine after its production.

While the company has expressed its readiness to supply Iraq with the vaccine after the last experimental stages which will be ready by the end of this year, especially after making sure of its safety, effectiveness and compliance with international health standards. The company is conducting clinical trials of the vaccine in several regions of the world, including the United States, Russia and a number of Latin American countries.

This meeting comes within a series of meetings held by the embassy with the company and other pharmaceutical companies in order to ensure that Iraq receives the vaccine in the start of its production.

(Source: Iraqi Ministry of Foreign Affairs)

By John Lee.

The director of the China National Offshore Oil Corporation (CNOOC) has presented his company's plans for the development of the Bazergan [Buzurgan] oil field in Maysan to Iraq's Oil Minister Ihsan Abdul-Jabbar.

In a separate meeting on Wednesday, the Minister also received the CEO of Lukoil in Iraq, Igor Zubarev, who gave a summary of the company's activities and plans in Iraq.

(Source: Ministry of Oil)

Iranian Oil Minister Bijan Namdar Zangeneh and his Iraqi counterpart Ihsan Abdul Jabbar discussed ways to promote cooperation between the two neighbors in the oil industry.

In a telephone conversation, Zangeneh and Abdul Jabbar called for the expansion of oil cooperation between the two Muslim neighbors.

The Iranian minister congratulated Abdul Jabbar on taking office as the new oil minister of Iraq after formation of a new government under Prime Minister Mustafa Al-Kadhimi's leadership, according to the Iranian government's official website.

Abdul Jabbar said Iraq's daily export of crude in June has reached 2.8 million barrels.

The Iraqi oil minister also emphasized that it would be in Iraq's interests to abide by a production cut agreement between OPEC and its allies, known as OPEC+, saying the Iraqi Kurdistan Region has been directed to comply with the OPEC+ deal and cut its share of oil output.

The OPEC members, Russia and other oil producing nations agreed in April to cut output by around 10% of global supply to support oil prices amid the coronavirus pandemic.

(Source: Tasnim, under Creative Commons licence)