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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.

Iraq And Iran Will Expedite Development Of Sanctions-Busting Shared Oil Fields

A key reason why oil prices have remained relatively subdued despite the ongoing Russia-Ukraine and Israel-Hamas wars is that Iran has been producing much more oil than widely known, with the tacit agreement of the U.S.

Click here to read the full report.

By John Lee.

The Iraqi Oil Ministry has responded to criticism from the trade body representing international oil companies (IOCs) operating in Iraqi Kurdistan, as they mark the one-year anniversary of the closure of the Iraq-Turkey Pipeline (ITP) connecting northern Iraq with the Mediterranean port of Ceyhan.

Highlighting the economic cost of the pipeline closure, the Association of the Petroleum Industry of Kurdistan (APIKUR) accused Baghdad of, "economic strangling of the KRI ... through blocking oil exports and non-implementation of budget transfers."

It added that there has been "no real progress" to reopen the line, and that debts of over $1 billion from the KRG to APIKUR member companies remain unpaid.

In response, Baghdad's Ministry of Oil said that it is the federal government that is the most affected by the cessation of exports, and blamed Turkiye for the closure of the pipeline.

The Ministry also pointed to the Supreme Court ruling that says those oil contracts are not valid, and that the Ministry of Oil in Baghdad is responsible for oil exports.

Full statement from APIKUR:

Key Points:

• • The Iraq-Türkiye pipeline (ITP) has now been closed for one year

  • The ITP closure impacts International Oil Companies (IOCs) in the Kurdistan Region of Iraq (KRI), blocking 450,000 barrels per day of crude oil exports

  • Continued closure costs the Government of Iraq (GoI), Kurdistan Regional Government (KRG), IOCs, and the people of Iraq billions of dollars

As the 1-year mark for the halt of oil exports through ITP approaches, the Association of the Petroleum Industry of Kurdistan (APIKUR) provides an update on the reported status of the discussions around reopening the ITP, its efforts to restore full production and exports from Kurdistan, and the financial impacts on the Iraqi people and International Oil Companies (IOCs).

On March 25, 2023, oil exports through ITP were halted.

To date, neither APIKUR nor its members have seen any proposal from the GoI or KRG that would lead to a resumption of exports.

All eight APIKUR member companies remain committed to their contracts with the KRG and have been repeatedly assured by the KRG that the KRG, for its part, is fully committed to these contracts as well.

APIKUR continues to seek to engage with all relevant stakeholders to reach an agreement to resume exports via ITP.

"APIKUR remains focused on working with all stakeholders to restore full oil production and exports through the Iraq-Türkiye Pipeline," said Myles B. Caggins III, spokesman for APIKUR. "Each day the pipeline is closed, losses continue to mount and the people, economy, and investment reputation of Iraq suffers."

APIKUR's Assessment:

The GoI has not taken the required actions to reopen the ITP and enable oil exports from the Kurdistan Region of Iraq, despite Türkiye's announcement in October 2023 that the pipeline is operational and ready to export oil.

APIKUR notes that meetings were held in Baghdad on January 7-9, 2024, between representatives of the GoI, KRG, and IOCs - including representatives of several APIKUR member companies. Despite those meetings and the subsequent press on positive discussions between GoI and KRG, there has been no real progress to reopen the ITP.

APIKUR's efforts to resolve the impasse:

• • Holding multiple meetings with the KRG and GoI officials in Baghdad, Erbil, and Dubai

  • Consistently and openly communicating APIKUR members' conditions for restoring export production:

    • Any addendums must be agreed between the GoI, KRG, and APIKUR member companies

    • There must be payment surety for past and future oil exports

    • Prospective oil sale payments to APIKUR member companies must be remitted directly to those companies

    • The APIKUR member companies' current commercial terms and economic model must be maintained

  • Launching a public awareness campaign across Arabic, Kurdish, and Western media outlets

  • Independent of APIKUR, several individual IOCs have proposed solutions to the GoI and KRG

In addition, APIKUR has engaged home governments of member companies-with a particular focus on the United States government (USG)-due to its unique bilateral relationships with the GoI and KRG, including the $300 million direct investment by USG in the Kurdistan Region's energy sector.

APIKUR has conveyed to senior members of President Biden's administration and members of the U.S. Congress that the White House should not proceed with the planned visit of Iraqi Prime Minister Mohammad Shia Al-Sudani, on April 15, 2024, to Washington, DC unless:

• • ITP is reopened and allows oil produced in the KRI to be exported to international markets

  • IOCs (including APIKUR members) get surety of payment for past and future oil exports

  • The GoI fully implements the Iraqi federal budget for the KRG

APIKUR summary of the ongoing impact of the ITP closure:

Financial Impact:

• • Estimated revenue loss to Iraq of more than $11 billion, approximately $1 billion each month

  • APIKUR understands that while ITP remains unused, Iraq accrues more than $800,000 in daily penalties for failure to meet contractual throughput quotas in the ITP agreement

  • Debts of over $1 billion from the KRG to APIKUR member companies for oil produced between September 2022 and March 2023 remain unpaid

  • More than $400 million in annual investments paused by APIKUR members

  • IOC annual revenues reduced by nearly 60% as local sales have replaced exports to international markets

  • Economic strangling of the KRI by GoI through blocking oil exports and non-implementation of budget transfers

Impact on Global Oil and Energy Markets:

• • The halt of ITP exports puts pressure on a precariously balanced global energy market currently affected by Russian sanctions and shipping disruptions through the Red Sea

  • Iraq continues to receive sanctions waivers to import electricity from Iran, instead of funding its own energy infrastructure through additional oil exports

  • Since ITP closed, the U.S. has imported upwards of 250,000 bpd of oil and products from Southern Iraq, while the GoI prevents oil produced by U.S. companies in Kurdistan Region from being exported

Impact on Employment in Iraq's Kurdistan Region:

• • APIKUR member companies have laid off hundreds of directly-hired personnel, including both expats and locally-hired staff

  • The collapse in IOC investment has caused even greater staff reductions in oilfield-related service and products industries, including lodging and catering, maintenance, security, transportation, and construction companies

  • The lack of oil revenue and budget transfers from the GoI to KRG has led to severe delays in payment of civil servant salaries, including teachers and health service workers

Reputational Impact:

• • Placing the respect for contract sanctity in question risks a significant downturn in the desire for the global business community to invest in Iraq

  • Budget law and oil export impasse has exposed intra-Iraq political rifts

Full statement from the Ministry of Oil (translated):

The Federal Ministry of Oil has reviewed a statement issued by an entity calling itself the "Association of the Petroleum Industry of Kurdistan (APIKUR)" dated March 23, 2024, which contained distortions of facts and several inaccuracies. In this regard, the ministry would like to clarify the following points:

1. The halt of oil exports through the Iraqi-Turkish pipeline in March 2023 was due to a Turkish decision following an international arbitration ruling by the Paris Chamber of Commerce in favor of Iraq. The export did not stop - not even for a day - due to a federal Iraqi decision. After more than six months and significant negotiations led by this ministry with the Turkish side, the parties agreed to reopen the pipeline and address the technical issues resulting from its closure in the shortest possible time. The federal government is the biggest loser from the export halt for reasons related to sovereign oil policy and others.

2. One of the main reasons for the current export halt is the refusal of foreign companies operating in the Kurdistan Region of Iraq to officially hand over their production to the regional government for export in accordance with the effective federal budget law. This includes companies affiliated with the mentioned association. Export can be resumed shortly if these companies deliver the produced oil from the fields located in the region in accordance with the law.

3. The federal government and this ministry have made diligent efforts to overcome all obstacles to resume exports, as evidenced by the content of numerous official letters, meetings, and relevant decisions over the past year. The latest of these efforts was our letter numbered (480) dated March 18, 2024, which emphasized the necessity of delivering the produced oil in the region for export purposes. This ministry continues to insist on resuming exports through the Iraqi-Turkish pipeline as soon as possible, while adhering to the provisions of the constitution and the law.

4. Official correspondences issued by this ministry, including our aforementioned letter, referred to reports from OPEC and internationally recognized secondary sources confirming oil production in the region ranging from 200,000 to 225,000 barrels per day, without the knowledge or approval of this ministry. Non-compliance with the adopted federal oil policy puts Iraq's reputation and international obligations at risk, and the responsible parties for violations will face all legal consequences.

5. Contracts purportedly concluded between oil companies operating in the region and the Ministry of Natural Resources in the region have not been approved by the federal government or the federal Ministry of Oil at all, as they lack a sound constitutional and legal basis. This has been the stance of successive federal governments and the Ministry of Oil for over a decade, consistent with the Supreme Federal Court decision numbered (59/federal/2012 and its unified decision 110/federal/2019) dated February 15, 2022. There is no room for debate after the Supreme Federal Court issued its definitive and binding decision, except to comply with it.

6. This ministry has previously requested the Kurdistan Regional Government and the oil companies operating therein to provide full copies of all the mentioned contracts for the purpose of studying them and reaching new contracts in line with the constitution, the law, and the best practices followed by this ministry with major international companies. However, these contracts have not been submitted so far. Therefore, it is unreasonable for this ministry to demand compliance with contracts it has not seen or recognized, which is fundamentally inconsistent with binding judicial decisions.

7. The Federal General Budget Law No. 13 of 2023, which came into effect on January 1, 2023, included in Article 12/Second/B a provision to calculate production and transportation costs at a rate equal to what this ministry pays in its contracts, with the production cost averaging $6.9 per barrel. However, the companies operating in the region demand three times this amount (excluding transportation fees) as one of the conditions for resuming oil delivery. The parliament's call to adopt the Ministry of Oil's rate was due to the lack of access by the parliament and other federal authorities to the contracts, as mentioned earlier. Moreover, the costs demanded by the companies include what they call payment of previous debts worth billions of dollars, amounts that are unknown to the federal government and do not align with borrowing frameworks under the constitution and the prevailing laws.

8. It has been clarified repeatedly that this ministry cannot violate the General Budget Law and other applicable laws, in addition to highlighting a significant exaggeration in the mentioned costs in the previous paragraph. This ministry has officially reiterated its commitment to immediately resume exports in accordance with the law through the Iraqi-Turkish pipeline, while negotiating in parallel to reach a comprehensive and mutually acceptable settlement that serves the public interest. However, the companies continue to refrain from complying unless their illegal conditions are met, which is unacceptable under any circumstances.

9. The Iraqi government has received representatives of the oil companies operating in the region at the highest levels as a goodwill gesture to find acceptable legal solutions. This ministry has previously invited these companies to negotiation meetings to find fair solutions and has taken continuous legal actions against the mentioned companies to allow room for amicable settlements. However, the companies' stance remains inflexible and unchanged.

10. The mentioned association's statement included blatant interference in Iraq's internal and external sovereign affairs, which have no relation to the companies' operations. This constitutes an additional violation by the mentioned association and the represented companies and does not align with the principles of goodwill and the fundamentals of foreign investment.

11. The federal Ministry of Oil, under the government's directives, is committed to making every possible effort to resolve the disputes and resume exports through the Iraqi-Turkish pipeline in line with the constitution and the law. Foreign companies wishing to operate in Iraq must respect the country's sovereignty, laws

(Sources: APIKUR; Ministry of Oil)

By John Lee.

On Wednesday, Iraqi Prime Minister Mohammed Shiaa Al-Sudani received the Chairman of the Russian Union of Manufacturers and Businessmen and the founder of Lukoil, Mr. Vagit Alekperov, along with his accompanying delegation.

During the meeting, discussions were held regarding Russian companies operating in Iraq, in light of the visit made by the Prime Minister to Moscow in October of last year.

The meeting also addressed plans for the development of the West Qurna II and Eridu [Block 10] oil fields, in which Lukoil operates, and ways to overcome the obstacles facing its work.

Additionally, discussions took place regarding Lukoil's participation in integrated energy projects in Iraq and new licensing rounds.

(Source: PMO)

In a recent move by the Kurdistan Regional Government's Ministry of Interior, citizens from 53 countries have been granted the ability to enter the Kurdistan Region without a pre-arranged visa.

Under this new policy, eligible travellers simply need to present their passports at any border entry point, where they will be issued an electronic visa, allowing them immediate access to the region.

The countries included in this visa exemption are: Albania, Australia, Austria, Bahrain, Belgium, Brazil, Bulgaria, Canada, China, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Iran, Ireland, Italy, Japan, Jordan, Kuwait, Latvia, Lebanon, Liechtenstein, Lithuania, Luxembourg, Malta, New Zealand, Norway, Oman, Poland, Portugal, Qatar, Romania, Russia, Saudi Arabia, Slovakia, Slovenia, South Korea, Spain, Sweden, Switzerland, Turkey, Vatican City, the Netherlands, the United Arab Emirates, the United Kingdom, and the United States of America.

Applicants must ensure their passports are valid for at least 6 months to be eligible for entry.

(Source: KRG)

By John Lee.

The Iraqi Cabinet has agreed to invite Russia's Gazprom to develop the Nassiriyah oilfield as a single contract.

While described in a statement from the Prime Minister's office as an "integrated development project", to be offered as a "single bid", it is not immediately clear if this is the originally proposed Nassiriya Integrated Project, which had reportedly been dropped following years of consideration. This would have included a major refinery.

The statement said:

"This decision exempts it from the justifications outlined in Article (3/Sixth) of the Government Contracts Implementation Instructions (No. 2 of 2014) and the accompanying standard documents."

It added:

"The Ministry of Oil will bear the responsibility for the accuracy, validity, and integrity of the contractual procedures."

(Source: Media Office of the Prime Minister)

By John Lee.

Iraqi Airways has announced that its scheduled flights between Baghdad and Moscow are cancelled, effective from 3rd February until further notice.

According to Iraq's Ministry of Transport, the cancellation is due to what it describes as, "operational reasons with the Russian side."

Passengers with reservations are advised to contact the airline for a refund.

(Source: Ministry of Transport)

From Tasnim, under a Creative Commons licence. Any opinions expressed are those of the author(s), and do not necessarily reflect the views of Iraq Business News.

A member of the Iran-Iraq Joint Chamber of Commerce said that $6.2 billion worth of non-oil goods were exported from Iran to Iraq in the first eight months of the current Iranian calendar year (started March 21, 2023), registering a 30% hike compared to the same period in 2022.

Given the considerable increase in the bilateral trade exchanges, it is predicted that the country's export of products to Iraq will hit a new record of $10 billion by the yearend (to end March 20, 2024), Hamid Hosseini stated.

Speaking in an interview with IRNA, he pointed to some problems in the field of supplying currency in Iraq and said despite such issues, the trend of Iranian exports to this Arab country is on an upward trajectory.

Hosseini pointed out that about $775 million worth of products are currently exported from Iran to Iraq monthly.

Iraq is still considered Iran's second export target market, he stated.

Noting that Iraq banned the use of foreign currencies in its transactions as of the beginning of 2024, he said domestic importers of goods should provide their currencies at a higher rate.

He called on responsible officials to take effective measures to remove the trade barrier between the two countries in line with spurring trade and economic activities.

Earlier, the deputy governor of the Central Bank of Iran (CBI) for international relations affairs said offshore rial will become operational within the next few months to help economic activists do their transactions with any country in the national currency.

The offshore rial will be launched in neighboring Iraq and Afghanistan due to the extensive social relations and also the Russian Federation due to the finalization of a bilateral monetary pact, Mohsen Karimi added.

The European Commission updated the EU Air Safety List, the list of airlines that are subject to an operating ban or operational restrictions within the European Union, because they do not meet international safety standards. Ensuring the highest level of air safety for Europeans and all other travelling passengers is at the very heart of the Commission's aviation safety policy.

Following the latest update, Fly Baghdad has been included on the List. The basis for this decision is safety concerns identified by the European Union Aviation Safety Agency (EASA). These led to the decision not to grant Fly Baghdad a Third Country Operator (TCO) authorisation.

The update also reflects the decision to maintain the ban on air carriers certified in Nepal, in view of continued safety concerns identified during an assessment visit to Nepal on 11-15 September. However, the Nepal Civil Aviation Authority's proactive engagement and ongoing efforts to enhance its safety oversight capacity, were duly acknowledged during the EU Air Safety Committee meeting.

Following this update, a total of 129 airlines are banned from EU skies:

• 101 airlines certified in 15 States (Afghanistan, Angola (with the exception of 2 airlines), Armenia, Congo (Brazzaville), Democratic Republic of the Congo, Djibouti, Equatorial Guinea, Eritrea, Kyrgyzstan, Liberia, Libya, Nepal, São Tomé and Príncipe, Sierra Leone and Sudan), due to inadequate safety oversight by the aviation authorities from these States;
• 22 airlines certified in Russia, as well as 6 individual airlines from other States, based on serious safety deficiencies identified: Air Zimbabwe (Zimbabwe), Avior Airlines (Venezuela), Blue Wing Airlines (Suriname), Iran Aseman Airlines (Iran), Fly Baghdad (Iraq) and Iraqi Airways (Iraq).

Two additional airlines are subject to operational restrictions and can only fly to the EU with specific aircraft types: Iran Air (Iran) and Air Koryo (North Korea).

This update to the EU Air Safety List is based on the unanimous opinion of Member State aviation safety experts, who met in Brussels on 14 to 16 November 2023 under the auspices of the EU Air Safety Committee. This Committee is chaired by the European Commission with support from EASA. The European Parliament's Transport Committee also supports the update. Decisions under the EU Air Safety List are based on international safety standards, and notably the standards decreed by the International Civil Aviation Organization (ICAO).

(Source: EU)

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.

Russia Takes Control of Iraq's Biggest Oil Discovery for 20 Years

The Eridu field - part of Iraq's Block 10 exploration and development region - is the biggest oil find in Iraq in the last 20 years, and Russia wants to control all of it, alongside its chief geopolitical ally, China.

Click here to read the full report.

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.

Assessing the Risks of a Wider Middle East Conflict

The market, as measured by the Rabee Securities US Dollar Equity Index (RSISX USD Index), was down 3.4% in October, and up 73.3% for the year. After a scorching four-month run in which the RSISX USD Index was up 43.7%, the market was ready for a pull-back. However, when it came, the pull-back was both short and shallow.

Average daily volume for the month was down by 22.2% versus that of the prior four months, while the market was in a range of up 2.0% to down 4.3%, with the declines driven by buyers holding back on chasing stocks as in the prior months.

These muted activities were reversed on the last day of October, with the banking sector resuming its momentum, which continued into the first few days of following month. By the end of the fifth trading day of November, the market had erased its October losses and is now higher than September's close (chart below).

While a few days do not make a month, the return of the banking sector's momentum and market leadership supports the investment thesis for the banking sector and the recent fundamental developments that gave it a boost, as discussed in "Banks to Fuel the Market's Next Phase" - especially in the current context in which global markets are assessing the risks of a wider Middle East conflict.

Rabee Securities US Dollar Equity Index

(Source: Rabee Securities, AFC Research, data as of November 7^th)

A wider Middle East conflict that would destabilise the region with repercussions for the world economy have been the subject of intense media coverage and extensive analysis over the last few weeks (*). Consequently, the current flurry of the U.S.' diplomatic initiatives aims to avoid such a conflict, and reinforces the ongoing behind-the-scene activities of the countries in the region, working with the main world powers in seeking to contain the conflict. It's difficult to forecast how the ongoing Gaza invasion and conflict containment initiatives will unfold over the coming weeks, however, the contours of an-emerging post-conflict world order, irrespective of its conclusion, are becoming increasingly clear.

The sharply contrasting responses of the West versus those of the Global South, to the unprecedented humanitarian crisis that is unfolding in Gaza, have crystalised the divide between them that materialised post the invasion of Ukraine. This divide is solidifying an emerging unbalanced multi-polar world in which power is diffused unequally between multiple powers, as was evident from the Global South's responses to the West's sanctions on Russia following the invasion of Ukraine. Most notably, in the diversion of Russian oil and gas from Europe to Asia and the subsequent changed supply-demand dynamics of energy markets, with their ongoing implications for the global economy that extend far beyond these markets.

In the meantime, oil markets, as measured by Brent crude futures contracts, are discounting elevated oil prices (yellow line-chart below) that are very close to those that they were discounting immediately following the invasion of Ukraine (red line-chart below). The key difference between the two is that the latest expectations are at the end of two weeks of back-to-back oil price declines in which oil markets have begun to discount a contained conflict, and which were reinforced by events that lowered the fears of a wider Middle East conflict. As such, there are not a great deal of supply-hit fears built into these expectations, and so they are a realistic indication of the near-term price expectations of this emerging unbalanced multi-polar world.

Market Expectations for Future Oil Prices

As measured by Brent Futures Contacts (USD per barrel)

(Source: Wall Street Journal, AFC Research, data as of November 6^th)

The current environment has implications for the risk-reward profile for investments in Iraq's equity market. On the risk part of the equation, the potential escalation of the ongoing invasion of Gaza into a wider Middle East conflict could threaten the relative stability that has marked Iraq over the last few years, irrespective of its distance from the conflict or of the non-existent possibility that it would be drawn into it as a combatant. While on the reward part of the equation, the changed geopolitical landscape of a multi-polar world is very positive for Iraq's economic outlook, given its extreme leverage to oil prices. Current expectations of Brent crude prices of USD 83 per barrel (/bbl) in 2024, and USD 79/bbl in 2025, would provide the government with the wherewithal to follow through with its expansionary three-year budget for 2023-25. The budget's sizeable liquidity injections into the non-oil economy should drive economic growth that would feed into meaningful growth in corporate profits, which in turn would sustain the market's current rally, as discussed here last month.

Notes:

(*) Foreign Policy Podcast featuring Kim Ghattas and Steven A. Cook on the chances of a broader conflict, 3^rd November 2023. https://foreignpolicy.com/podcasts/foreign-policy-live/regional-reverberations-from-israels-war-on-hamas/

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.