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In line with Iraq’s goal to improve the efficiency and availability of the country’s power plants, Siemens will provide inspection and upgrade services for two power generation units at Al-Sadder Power Plant.

Located in Baghdad, the 600-megawatts (MW) facility is one of the country’s major power plants that currently supplies approximately 600,000 homes with power. The works will be conducted as part of a new contract between Siemens’ Power Generation Services Division and the Ministry of Electricity.

Under the agreement, Siemens will overhaul two SGT5-2000E gas turbines and perform its advanced 3-dimensional turbine blades and vanes (Si3D) upgrade. The Si3D upgrade is designed to improve power output and thermal efficiency through a combination of 3D aerodynamic design, cooling improvements, and advanced materials. These will help the power assets at Al-Sadder to generate enough power to supply an additional 100,000 homes with electricity.

“Siemens has been a development partner to Iraq for over 80 years. We are committed to supporting the country to strengthen its power infrastructure by offering innovative services that can be instrumental in upgrading existing facilities,” said Gianluigi Di Giovanni, Senior Executive Vice President of Siemens Power Generation Services in the Middle East and North Africa. “The latest upgrade and maintenance services at Al-Sadder, provided in collaboration with the Ministry of Electricity, will bring additional power to households, public buildings and industries.”

In addition to increasing the power output, the upgrade project will improve the efficiency of the turbines by up to 2 percent, resulting in significant fuel savings and reduced CO2 emissions. The agreement also includes the plant’s SPPA-T3000 control system, the supply of anti-virus solutions as well as the support from Siemens’ Remote Expert Center, which is a 24/7 online maintenance support service, enabling more efficient fault diagnosis and troubleshooting.

The latest project at Al-Sadder plant follows a series of service agreements with Iraq’s Ministry of Electricity to carry out critical service and maintenance works at six power plants throughout the country. Once completed, the upgraded units will add 1,350 MW to the national grid, enough to supply approximately 20 million Iraqis with reliable electricity.

(Source: Siemens)

BP, Shell, Basra Gas Company, LUKOIL, Petronas and Chevron discuss Basra’s oil and gas megaprojects

The 5th annual CWC Basra Megaprojects Conference - Oil, Gas & Environment will be held from 9-10 October in Istanbul, Turkey chaired by the EU Ambassador to Baghdad, Ramon Blecau.

In a show of support for the rebuilding of Iraq, Ambassador Blecau and industry experts will highlight the business opportunities available in the resource-rich South of Iraq with the aim of driving more investment to develop the country’s industrial infrastructure.

The conference takes place under the patronage of Basra’s Governorate, Council and oil company and looks to find solutions to the challenges of Basra’s oil and gas megaprojects and increasing Iraq’s oil and gas production, as well as highlighting the upcoming infrastructure projects for: gas, water, electricity and environment. All the major operators will be participating in discussions including: BP, Shell, Basra Gas Company, LUKOIL, Petronas and Chevron.

Further to these discussions, there will be a strong focus on Iraq’s environment and how to build a legislative framework to tackle Basra’s environmental issues; tackling all types of challenges including the demining projects.

New technology will play a significant role in achieving operational excellence in the execution of Iraq’s projects; whilst Iraq’s new generation of workforce are eager to embrace the technologies, the conference will touch upon the training programmes that are imperative for helping Iraqis compete for job opportunities and increase the role of the Iraqi local workforce in the execution of the latest projects.

Water and desalination projects will be the centre of discussion on the second day of the conference as well as the electricity requirements for such projects and ideas for renewable projects in Iraq.

Gas and petrochemical projects will also be covered by industry experts, which will be instrumental in creating new jobs for Iraqis but raise further questions on how the environment can be preserved during these processes. During the conclusion of the Conference, all the available tenders for the new projects will be outlined.

The interactive networking sessions will be at the centre of the conference with great number of functions including the Gala Dinner at the end of the first day of the Conference. The achievements of individuals in environmental technology projects will also be celebrated at the Environmental Awards Ceremony, which will take place during the Gala Dinner with awards being given out by the Iraqi delegation.

We look forward to seeing everyone at the Intercontinental Istanbul from 9-10 of October. To download the latest programme, please visit www.cwcbasraoilgas.com/brochure-download/.

Distinguished Speakers to include:

• Ambassador Ramon Blecua, Ambassador / Head of Delegation, Delegation of the European Union to Iraq
  • HE Kameran Ali Hassan, Deputy Minister of Environment, Ministry of Environment, Federal Government of Iraq
  •       HE Asaad Abdulamir Abdulghafar Al – Idan, Governor of Basra, Federal Government of Iraq
  •       HE Engineer Mohammed Al Tamimi, First Deputy Governor of Basra, Governorate of Basra, Federal Government of Iraq
  •       Ihsan Abduljabbar Ismaael Al – Saade, Director General of the Basra Oil Company, Ministry of Oil, Federal Government of Iraq
  •       HE Dara Reshid, Deputy Minister, Deputy Head of Reconstruction Fund for Areas Affected by Terroristic Operations (REFAATO), Ministry of Construction, Housing & General Municipalities, Federal Government of Iraq
  •       HE Ali Dawai Lazem, Governor of Maysan, Federal Government of Iraq
  •       Nafaa Abdulsada Ali Al-Hmidawi, Director General of Training & Development Office, Ministry of Electricity, Federal Government of Iraq
  •       Mohammed Hashim, Director General of Electricity Distribution, Ministry of Electricity, Federal Government of Iraq
• MP Dr Jamal Abdul-Zahra Muhammadawi, Member of the Parliament Representing Basra, Federal Parliament of Iraq •                   Kevin J. Kveton, Ph.D.Director, Iraq Exploration & Business Development, Chevron  Europe, Eurasia & Middle East Exploration & Production
  •       Zaid Elyaseri, Country Manager, BP Iraq
  •       Dr Mark Wharton, Development & JV Manager Shell Iraq, Shell EP International Ltd.
  •       Abd Malik Jaffar, Iraq Country Chairman, PETRONAS Carigali Iraq Holding B.V.
  •       Yaroslav Okulov,  Financial Director, LUKOIL Mid-East Ltd
  •       Dr Jaafar Oklany, Commercial Director, Basrah Gas Company

View the full list of speakers here: http://www.cwcbasraoilgas.com/speaker/

The renowned Conference will address opportunities, projects and tenders in each one of these industries through its 2 day Strategic Programme. Attendees can expect the following topics to be discussed:

• Current updates on Basra’s oil fields
• Iraq’s Environment
• Infrastructure for Upstream Oil & Gas Projects ( Technology Showcasing- upstream activities suppliers, pipelines suppliers, demining technologies, logistics suppliers, security suppliers ) & Training on the New Skillsets
• Finance, Laws & Regulations & Procurement
• Water Projects: Increasing Efficiency for the Oil & Gas Projects
• Electricity Expansion & Renewables for the Oil & Gas Projects
• Gas & Petrochemicals
• Energy Tenders Announcements; Downstream, Midstream, Petrochemicals & Electricity projects

View the full programme here: www.cwcbasraoilgas.com/brochure-download/

(Source: CWC)

UN’s Kubiš Urges Calm and Speedy Formation of Government to Tackle Iraq’s Persistent Problems

The Special Representative of the United Nations Secretary-General (SRSG) for Iraq, Mr. Ján Kubiš, expresses grave concern over the casualties during violent protests over the lack of critical public services in Basra. He offers condolences to the families of the dead and wishes the injured a speedy recovery.

Mr. Kubiš calls for calm and urges the authorities to avoid using disproportionate, lethal force against the demonstrators, provide the necessary protection for the people of Basra, ensure human rights while protecting law and order, and investigate and hold accountable those responsible for the outbreak of the violence.

The Special Representative calls on the Government of Iraq to do its utmost to respond to the people’s rightful demands of clean water and electricity supplies as a matter of urgency.

Mr. Kubiš urges political leaders and the newly elected Council of Representatives to assume their duties and act responsibly and without delay, including taking all the necessary steps to expeditiously agree on a new national, patriotic and pro-reform government that will quickly and effectively respond to the people’s longstanding needs and deliver on their basic demands of water and electricity and the longer-term goal of job creation and life in dignity.

Long-term stability and improved economic performance go hand-in-hand, and tackling these challenges rests with the political leaders uniting and working together in the national interest.

(Source: UN)

Crescent Petroleum and Dana Gas deliver vital support to AMAR IDP clinics

As Iraq’s security conditions have improved, international donors have turned their attention to other troubled parts of the world, leaving many IDP camps in the country on the brink of closure.

Thanks to the continued support of Crescent Petroleum and Dana Gas, however, AMAR have continued to deliver much needed healthcare and support to Khanke Camp’s 16,000 residents

Nearly 2 million Iraqis remain displaced within Iraq, a vast proportion of them still in camps for internally displaced people (IDPs). From victims of conflict who have lost homes and livelihoods to families too afraid to return to their homes after the violence of recent years IDPs remain among the most vulnerable population in the country.

After the trauma of violence and displacement, families in the camps continue to rely on the safe, supportive and nurturing environment in the camp to start rebuilding their lives. But with charitable funding drying up, many camp facilities, especially health care centres, are facing imminent closure.

Dana Gas and Crescent Petroleum, which have contributed considerably to causes within Iraq, remain committed to AMAR’s services in Khanke, delivering vital health and wellbeing services to the thousands of residents at the camp.

Crescent, one of the Middle East’s oldest and largest upstream oil companies, and Dana, one of the largest private-sector natural gas companies in the region, are committed to helping AMAR deliver vaccinations, antenatal care and child health monitoring at the camp.

“IDPs are among the most vulnerable people in Iraq, but sadly they are often overlooked by donors,” said Majid Jafar, CEO of Crescent Petroleum. “We are proud to be partnering with AMAR to provide critical healthcare services and training to the people in Khanke camp.”

A key part of the health programme at the camp are the Woman Health Volunteers (WHVs), who are the front line to identifying health and wellbeing issues among the residents and are trained to deliver health care when needed. Between April and June of this year, the WHVs made thousands of home visits to families at the camp, providing basic healthcare services and delivering health advice, in addition to providing mental health outreach. In all, the WHVs offered support and services to more than 15,000 people during the spring period.

One AMAR WHV, Thikra, for example, recently paid a visit to the Jamila family in the camp. One of the family’s sons had been showing distressing changes in behaviour, including fatigue, excessive sleep and weight gain. Thikra identified the signs of depression in the boy and confided in Mrs. Jamila to openly discuss her son’s symptoms. She then advised the mother to seek a medical assessment for boy’s the condition and set the family on the path to recovery.

Thikra’s work is funded by Dana and Crescent, and is emblematic of the kind of support the companies are funding and promoting in the community.

The companies also provide funds for vocational training programmes in the camps, including sewing and design, IT, and English lessons, providing residents the opportunity to develop skills that can boost their chances of finding employment or to set up their micro-business of their own.

Crescent Petroleum and Dana Gas are among the largest private foreign investors in Kurdistan. Their focus is on developing the region’s natural resources in sustainable way to deliver lasting benefits to local communities. Their US$1.1bn development of the Khor Mor gasfield provides the natural gas to power electricity plants in Erbil and Chamchamal, delivering 1,700 MW of electricity to over 4m people living in the region.

LPG Plant in Kor Mor

Patrick Allman-Ward, CEO of Dana Gas’, said:

“We are committed to developing resources in Kurdistan to provide power to communities and build the structures for inclusive growth, as well as to tackle the economic and social factors that are a barrier to this development. We look forward to strengthening our partnership with AMAR in the future so that we can continue working towards these goals across the region.”

Other projects Dana and Crescent have funded in Kurdistan include renovating and supplying schools, funding hospitals and providing potable water to villages.

Baroness Nicholson, AMAR’s Founder and Chairperson said:

“It is vital that we continue to provide healthcare and education in the camps, as people living there continue to experience extreme deprivation. Thanks to the exceptional generosity of Dana and Crescent, we are able to do this in Khanke. We are very grateful to them for giving us the opportunity to bring relief and support to communities in real need.”

(Source: AMAR)

The Netherlands has contributed an additional USD 23.2 million (EUR 20 million) to UNDP’s Funding Facility for Stabilization (FFS), which finances fast-track initiatives to stabilize areas liberated from the Islamic State of Iraq and the Levant (ISIL). This brings the Netherlands’ total contribution to USD 65.4 million (EUR 57 million).

Marta Ruedas, Deputy Special Representative of the UN Secretary-General for Iraq, said:

“The impact of stabilization activities is clearly visible across the country. Schools are reopening, clean water is flowing and bridges are reconnecting communities.

“Almost 70 percent of the 5.9 million people who fled during the conflict have returned home. The scale of work still left to do cannot be underestimated, however, which is why this generous contribution from The Netherlands comes at exactly the right time.”

Sigrid Kaag, Dutch Minister for Foreign Trade and Development Cooperation, said:

“It is of the utmost importance to restore stability here and in other places destroyed by ISIS ... Giving people the prospect of a brighter future is essential because their property and livelihoods lie in ruins. This includes re-establishing water and electricity supplies, schools and other basic services.”

The Minister recently visited the Old City of Mosul to assess the impact of stabilization activities in the region.

At the request of the Government of Iraq, UNDP established the Funding Facility for Stabilization (FFS) in June 2015 to facilitate the return of displaced Iraqis, lay the groundwork for reconstruction and recovery, and safeguard against the resurgence of violence and extremism.

The Facility currently has over 2,400 projects underway in 31 liberated cities and districts, helping local authorities to quickly rehabilitate essential infrastructure. Almost 1,200 projects have now been completed, with some 95 percent of projects carried out by the local private sector employing local labour. In Mosul alone, FFS is implementing over 750 projects. With over 300 projects now completed across the city, residents have improved access to healthcare, education, electricity, and clean running water.

Since the start of the most recent conflict in 2014, almost 70% of the 5.8 million displaced Iraqis have returned to their homes. The impact of FFS has been significant in supporting people upon their return home. FFS has 26 donors that have committed over USD 800 million to stabilization efforts in Iraq.

(Source: UNDP)

By John Lee.

Kuwait reportedly expects to reach agreement with Iraq on joint oil fields and the import of Iraqi gas by the end of this year.

KUNA quotes Kuwait's Oil Minister and Minister of Electricity and Water Engineer, Bakheet Al-Rashidi, as saying:

"We are in the process of selecting a global consultant to study the joint fields project."

(Source: KUNA)

By Adnan Abu Zeed for Al Monitor. Any opinions expressed here are those of the author and do not necessarily reflect the views of Iraq Business News.

The Iraqi Cabinet announced Aug. 12 that it has approved a regulation by the Ministry of Labor requiring that 50% of foreign oil company employees working in the country be Iraqis.

The move followed mass demonstrations in Basra calling for better public services, including clean water and working and reliable electricity, and job opportunities for the unemployed in the city. Iraq's largest oil reserves lie beneath Basra province.

Basra Governor Assaad al-Eidani had on July 31 announced that an agreement had been concluded with the foreign oil companies to secure job opportunities for Basra residents. Days earlier, the Associated Press reported Deputy Governor Dhirgham al-Ajwadi saying that the unemployment rate in Basra, population 4 million, had risen sharply to at least 30%.

On July 13, demonstrators had stormed the headquarters of the Russian oil company LUKOIL at Basra's West Qurna 2 field, one of the largest, leading workers to pack their belongings. A number of them were evacuated by helicopter.

Click here to read the full story.

(Picture Credit: Ahmed Mahmoud)

By John Lee.

Talks are reportedly continuing to complete the electricity linkage between Iraq and Kuwait.

KUNA quotes Kuwait's Oil Minister and Minister of Electricity and Water Engineer, Bakheet Al-Rashidi (pictured), as saying:

"We expect that these negotiations will ultimately lead to linking Iraq's electricity grid with the Gulf network and then link with Turkey and Europe on the long-term.

"We are always ready to help our brothers in Iraq, according to the instructions of the political leadership."

(Source: KUNA)

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

 

(Source: https://tradingeconomics.com/iraq/imports)

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

 

(Source: http://www.iraqbase.com/trade_with_iraq/iraq_tradition.aspx#c_31)

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

 

(Source: https://tradingeconomics.com/turkey/exports/iraq)

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

 

(Source: https://tradingeconomics.com/jordan/exports/iraq)

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

 

(Source: https://tradingeconomics.com/kuwait/exports/iraq)

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

 

(Source: https://tradingeconomics.com/united-arab-emirates/exports/iraq)

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

 

(Source: https://tradingeconomics.com/saudi-arabia/exports/iraq)

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.

Disclaimer

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.

 https://financialtribune.com/articles/economy-business-and-markets/81287/iran-third-biggest-trading-partner-of-iraq-with-16-share

[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

[iv] http://documents.worldbank.org/curated/en/672671468196766598/pdf/106132-v2-main-report-P159972-PUBLIC-KRG-Economic-Reform-Roadmap-post-Decision-Review-05-30-16.pdf

[v] https://www.washingtoninstitute.org/policy-analysis/view/turkey-and-the-krg-signs-of-booming-economic-ties-infographic

[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.

The #JODIData report is out for the month of May. Let's begin with #SaudiArabia.

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, Inc. (@TankerTrackers) July 18, 2018

[viii] http://www.jordantimes.com/news/local/industrial-exports-iraq-resume-after-border-reopening

[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%.

[x] http://iraqieconomists.net/en/2017/09/19/uae-iraq-trade-touches-7-billion-2016/

[xi] https://www.thenational.ae/world/mena/saudi-iraqi-trade-to-reach-23-billion-saudi-riyals-within-10-years-1.706487

[xii] https://en.mehrnews.com/news/122562/Iran-to-resume-electricity-exports-to-Iraq-within-weeks

[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

[xv] https://theiranproject.com/blog/2018/07/08/iran-cuts-electricity-supplies-to-iraq-over-unpaid-bills/

[xvi] https://theiranproject.com/blog/2018/07/17/govt-spox-iran-not-to-resume-electricity-supplies-to-iraq-in-near-future/

[xvii] https://www.middleeastmonitor.com/20170202-kuwait-considers-export-of-electricity-to-iraq/

[xviii] https://www.bloomberg.com/news/articles/2018-07-29/iraq-says-saudis-to-sell-it-power-at-a-fraction-of-iran-s-price

[xix] Page 82 “A New Hope: Iraq Oil’s Way Forward” http://www.bayancenter.org/en/2018/02/1435/

[xx] http://www.irna.ir/en/News/82906994

[xxi] Page 82 “A New Hope: Iraq Oil’s Way Forward” http://www.bayancenter.org/en/2018/02/1435/

[xxii] http://documents.worldbank.org/curated/en/255111529495871846/pdf/Jobs-in-Iraq-a-primer-on-job-creation-in-the-short-term.pdf

[xxiii] http://www.bbc.com/travel/gallery/20171220-the-iraq-city-that-opens-its-doors

[xxiv] https://www.alarabiya.net/articles/2012/04/12/207233.html

[xxv] https://www.reuters.com/article/us-iran-banks-kerry-idUSKCN0Y30OJ

[xxvi] A recent report by the author covers this in further detail.https://www.iraq-businessnews.com/2018/06/15/forget-the-donations-stupid-new-dynamics-in-funding-reconstruction/

[xxvii] https://uk.reuters.com/article/mideast-crisis-iraq-reconstruction/factbox-pledges-made-for-iraqs-reconstruction-in-kuwait-idUKL8N1Q55RY

Germany's Siemens will upgrade one of the country’s largest gas-fired power plants.

Under a new contract, Siemens will add 650 megawatts (MW) to Shatt Al Basra Gas Power Plant, which currently has a power generation capacity of 1,250 MW and consists of non-Siemens turbines operating in simple-cycle mode.

Siemens will supply five of its highly-efficient steam turbines, ensuring the additional power supply comes at no extra fuel requirement. With this upgrade, the facility will be converted to operating in combined cycle mode and its overall efficiency will increase to more than 50 percent. Once the works are completed, the power plant will supply around one million Iraqis with reliable and clean electricity.

Siemens was awarded the contract by China Machinery Engineering Corporation (CMEC). The developer of the project is KAR Electrical Power Production Trading FZE (KEPPT).

Earlier this year, Siemens was contracted to supply two of its robust SST-5000 steam turbines to a similar project in Rumaila in Iraq, making it the first large-scale open cycle conversion project in the country. The upgrade works for both the Rumaila and the Shatt Al Basra power plants are scheduled for completion by 2020.

Jean-Claude Nasr (pictured), Senior Executive Vice President, Power Generation at Siemens in the Middle East, said:

“Iraq is rebuilding its power infrastructure and we are eager to support the country’s future aspirations. A reliable and efficient power supply is the backbone of a prosperous economy and today’s announcement underscores an important step towards realizing Iraq’s aspirations towards building a robust power system and a sustainable economy for its people.”

Siemens recently received an order to modernize the Rumaila gas-fired power plant in Iraq, adding 700 MW to the plant. The scope of supply includes two SST-5000 steam turbines.

From energy supply and industry to financing and training, Siemens outlined its roadmap and commitment to supporting the development of Iraq in February at the Iraq reconstruction conference held in Kuwait.

The roadmap identified the country’s short, mid and long-term development needs. It focused on key areas including energy management, resource efficiency, education, anti-corruption and financing. It detailed how Siemens can support the country’s transformation. Siemens envisions 40 million Iraqis living in vibrant cities, powered by reliable and efficient energy; a strong industrial sector and sustainable economic development, led by world-class, home-grown talent.

(Source: Siemens)