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Reuters reports that Iraq’s central bank, struggling to stem an illicit tide of dollars into sanctions-bound Iran and Syria, has had some success in steadying its own dinar by pumping dollars to Iraqis through two state-run banks.

Late last month the central bank allowed U.S. dollars to be sold at a fixed rate through two state-run banks, Rafidain and Rasheed, helping to push the dollar from 1,280 dinars to 1,210 dinars and closing the gap between the official rate and the market price.

The central bank has started channeling $6 million a day through the two banks, Mudher Kasim, deputy governor of the Central Bank of Iraq (CBI), told Reuters. "The difference in the value of the Iraqi dinar between the central bank price and the market was seven percent but now it is less than four percent ... We are expecting it to drop below two percent in a few weeks", he said.

The central bank usually sells about $250,000 to private banks and $75,000 to currency exchange and money transfer shops on a weekly basis.

For months, traders have been snapping up dollars at the central bank’s daily auctions for sale in neighboring Syria and Iran, buying up to $400 million on some days in December from a previous average of $150 million, according to central bank data.

Kasim said the CBI had since extended the clearance period to six months to allow for more flexibility in the importing process. Four private banks have also asked the CBI for permission to sell dollars at a fixed rate.

The CBI has said Iraq’s large foreign reserves, which have risen to a record $60 billion on the back of high oil prices, will shield its financial system from damage.

However, some economic analysts say the measures may not sustain dinar stability in the long run.

"We are still importing more than 85 percent of our needs and there is still pressure from Syria and Iran," said economic expert Majid al-Souri.

(Source: Reuters)

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Iraq Business News is delighted to bring you the latest Iraq Market Tracker report from Dunia Frontier Consultants. The market tracker highlights the activities and market performance of a basket of publicly traded firms who derive a significant percentage of their revenues from operations in Iraq, but are traded on foreign exchanges: a proxy Iraq play as much as practicable. It also identifies and analyzes the primary political and security events that occur in country that have market-moving implications.

Click here to access the report.

Companies Mentioned:

DNO, Dragon Oil, Genel, Kuwait Energy, Inpex, Lukoil, Pakistan Petroleum, Shell, Turkish Petroleum, WesternZagros

Action Calls:

• 4th Round Auction fails to impress: Will failure lead to convergence or divergence between Kurdish and central government approaches to oil and gas?
• WesternZagros mulling London listing: Critical mass of Kurdish plays may be emerging in London.

Headlines:

• Sadr invites Maliki to Najaf, only to be rejected: No-confidence rhetoric takes on fevered pitch.
• Barzani: Peshmerga to be unified by end of the year: Long time coming, but timely now, given debate with Baghdad.
• Turkish consulate protesters dissipate: Potential indicator of Baghdad's, and possibly Erbil's, relations with Ankara.

Calendar Events Discussed:

• June 15 - Parliament returns from 6 week break

Click here to access the report, or to add your email address to Dunia's mailing list to receive the Iraq Market Tracker via email.

MP Firhad al-Atroushi of the Kurdistani Alliance, and a member of the Parliamentary Oil and Energy Committee, has reportedly described Iraq's 4th round energy auction "a violation to the Iraqi Constitution."

He added that it represents a legal problem since it is supposed to be overseen and supervised by the Parliament:

"The Kurdistani Alliance has demanded more than [once] those in charge of the oil sector to wait and take enough time before conducting such bids, since they will result in concluding contracts according to the old laws adopted by the Ministry of Oil."

"This reflects an ambivalence state when Baghdad government refuses concluding such contracts in Kurdistan Region."

(Source: AIN)

Following the allocation of only three of the 12 exploration fields on offer in Iraq's 4th round energy auction, the Oil Ministry plans to go ahead with a 5th round auction for more sites.

“Of course, we will prepare for a fifth round, and we have more than 60 blocks ready for bidding,” Oil Minister Abdul Kareem al-Luaibi [Elaibi] told reporters after today’s auction, according to a report from Bloomberg.

“We will start, God willing, during the next months to prepare the data packages.”

(Source: Bloomberg)

Iraq’s government signed deals for only three of the 12 oil and gas exploration blocks offered in its fourth energy auction, which ended on Thursday, reflecting reluctance of foreign bidders to risk money in unexplored areas.

Russia's LUKoil, along with partner Inpex Corp of Japan, won the deal for the 5,500-square-kilometer Block 10 in Muthanna and Dhi Qar provinces in the south of the country. The group will be paid $5.99 for each barrel of oil equivalent it finds.

A bid from Pakistan Petroleum also won gas Block 8 in Diyala and Wasit provinces in eastern Iraq. It will receive $5.38 per barrel of oil equivalent.

Four other blocks and two from the first day that were re-offered received no bids.

The second day of bidding followed a sluggish start to the auction Wednesday, when only one block was allocated.

Washington Post reports that Oil Ministry spokesman Assem Jihad said the government is not disheartened: "We do not consider three successful bids as a disappointing matter, taking into consideration that foreign companies in general do not like to take risks on unexplored areas."

(Sources: Bloomberg, Washington Post, NINA, RT)

Wednesday was Day 1 of Iraq's two-day auction for the rights to 12 new exploration fields, but the long-awaited and often-delayed event was widely considered a disappointment, with only two bids received and only one deal agreed.

The reason, say critics, is that Iraq is playing hardball on the terms offered to the 47 international exploration firms.

This can be a difficult judgement call for governments, with many regimes around the world accused of selling off their national resources too cheaply, sometimes in return for kickbacks.

Taking a very long-term view, Iraq has many large existing fields to develop, and could easily afford to leave any as-yet-undiscovered oil and gas in the ground until conditions improve and prices are more favourable.

But that's not the plan, with the Oil Ministry reportedly intending to grant the fields to Iraqi companies if they are not allocated on Thursday.

If that is the case, we will be very interested to see what terms and business models are agreed with these locally-based companies.

Upper Quartile and AAIB work closely with businesses in the Iraqi energy sector. To see how they can assist your business in Iraq, please contact Gavin Jones or Adrian Shaw.

The first day of Iraq's fourth energy auction resulted in just one successful bid, with four of the today's six exploration fields receiving no bids from the 47 pre-qualified bidders. The six blocks offered today were numbers 2, 9, 6, 12, 1 and 11.

A consortium of Kuwait Energy (40%), Turkey's TPAO (Turkiye Petrolleri AO) (30%) and the UAE's Dragon Oil (30%) won the rights to explore a 900-square-kilometer (350-square-mile) Block 9, near the Iranian border in the oil-rich southern Basra province. It will be paid $6.24 for each barrel of oil equivalent it finds.

An unsuccessful bid was made for the rights to the 8,000-square-kilometer (3,100-square-mile) Block-6 in the southern Anbar and Najaf provinces. A consortium led by UK's Premier, along with Vietnam's PetroVietnam and Russia's Bashneft, sought $9.85 for each barrel of oil equivalent, but the government offered to pay only $5 per barrel and withdrew the lot.

Four other blocks attracted no bidders. The bidding will continue on Thursday for the other six blocks, and for blocks 2 and 6 which will be offered again to give companies that weren’t present today a chance to bid. Seven of the 12 exploration blocks are believed to hold natural gas, and the rest both natural gas and oil.

The oil minister said that if Thursday's auction also attracts little interest, Iraqi companies would explore those lots, ruling out the possibility that contract terms would be revised.

(Sources: AKnews, AFP, Associated Press, Bloomberg)

Last week the Central Bank of Iraq (CBI) announced that it was authorizing the two largest state-owned banks, Rafidain Bank and Rashid Bank, to sell US dollars at auction. The CBI’s goal is to reduce the spread between its own auction rate and the unofficial “street” exchange rate, which has recently been as wide as seven percent. The CBI expects the spread to narrow to four percent initially and eventually to reach two percent as the unofficial rate strengthens. (See this story from Alsumaria and the “Economics” section of last week’s Rabee Securities Weekly Bulletin.)

A five percent strengthening in the street rate might not sound like much. But the CBI is doing more than just narrowing the spread. It is also eliminating uncertainty about the future direction of the dinar by signaling that no further deprecation will be tolerated.

This move is positive for Iraqi stocks because a stronger currency will increase the expected value of the IQD-denominated earnings of the listed companies relative to the return on USD assets. The increased supply of US dollars may also push up earnings at the listed banks by allowing them to expand their offerings of USD products such as letters of credit.

While you’d never guess it from the market’s tepid reaction to the news, the CBI has given investors yet another reason to be long the ISX.

Iraq's fourth energy bidding round takes place on Wednesday and Thursday, but Reuters reports that tough contract terms mean Baghdad may struggle to drum up major interest.

The 12 new oil and gas exploration blocks are some of the last potentially rich unexplored territories left.

As in previous auctions, foreign energy companies would prefer production-sharing contracts, through which explorers can claim a share in profits, to the service contracts that are being offered, under which they would be paid a fee for their services.

In February, Baghdad made concessions to lure participants to the round, dropping a clause that required companies to partner with a state oil operator. But Iraq Oil Report says that the terms insist that companies recognize Baghdad as Iraq's sole oil authority, preventing them from signing deals with the Kurdistan Regional Government (KRG).

Reuters says the companies that win bids will be able to extract gas discovered in the blocks immediately, but the Iraqi government has retained the option to pay companies compensation to keep oil in the ground and boost its own reserves.

These latest exploration blocks are mostly in remote parts of western and central Iraq, making them harder to protect against possible insurgent attacks.

"Neither the terms nor the acreage on offer are attractive, so I wouldn't be surprised if there were little interest from the international oil companies," one anonymous senior Western oil executive told the agency.

According to a final tender document, the outcome of the bidding will be decided only according to the remuneration fee companies seek for each barrel of oil equivalent produced. The bid with lowest fee will win an exploration block.

Industry sources said companies would have to bid $10 to $20 a barrel for the service fee to compensate for the risk involved.

On the other hand, Baghdad-based oil analyst Hamza al-Jawahiri told Reuters, "who could miss such a golden opportunity to invest in such promising areas. The crude and gas are there and it only needs someone to poke them."

Please click here to see the full list of companies qualified to bid in the auction.

(Sources: Reuters, Iraq Oil Report, Ministry of Oil)

Advertising Feature

Iraq Business News is delighted to bring you the latest Iraq Market Tracker report from Dunia Frontier Consultants. The market tracker highlights the activities and market performance of a basket of publicly traded firms who derive a significant percentage of their revenues from operations in Iraq, but are traded on foreign exchanges: a proxy Iraq play as much as practicable. It also identifies and analyzes the primary political and security events that occur in country that have market-moving implications.

Click here to access the report.

Companies Mentioned:

Exxon, Lukoil, Pakistan Petroleum, Shell, Statoil, Total, Zhenhua

Action Calls:

• News to watch: 4th Round Auction: First test of many for the TSC model; watch for defections and where per-bbl fees come in.

<liBaghdad decides to cut gasoline to Kurds, before changing mind: Why the reversal? Bigger question may be from where the next break will come.

Headlines:

• Maliki goes after Nujaifi in his home province: Maliki goes after rival in his home territory, stake claim to disputed province.
• P5+1 mostly a non-event domestically: We said to watch this, but it won't affect domestic calculus too much.
• Basra Provincial Council debates anti-Turkish measures: Potential indicator of Baghdad's relations with Ankara, and possibly Erbil.

Calendar Events Discussed:

• May 30-31 - 4th Round Oil and Gas Auction
• June 15 - Parliament returns from 6 week break

Click here to access the report, or to add your email address to Dunia's mailing list to receive the Iraq Market Tracker via email.