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Iraq On The Brink Of Civil War As Oil Revenues Evaporate


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Iraq On The Brink Of Civil War As Oil Revenues Evaporate

By Viktor Katona - Apr 02, 2020, 2:00 PM CDT

Iraq oil

For many countries, the ongoing oil price depression has brought about a new era of impending economic implosion. Yet no one seems to suffer as much as Iraq nowadays – a country with no appropriate government, battle-bled from its fight against the Islamic State and torn apart by internal conflicts. With a median age of 21 years, the challenge for Iraq as a federal state within its current borders is all the more complicated as the government has little to offer to large swaths of young people, tired of nepotism and red-tape. Iraq could mitigate risks by handing out cash – it has none, it could tap into its reserves – again, very little (some $62 billion), effectively, Baghdad’s only survival strategy is to wait and pray for better times.

Just when Iraq hoped to rebuild the country – its 2020 budget has been the largest in history and has focused on revamping the nation’s dilapidated infrastructure – external developments have cut the ambitious targets short. The massive budget was in many ways a response of the 2019 protest waves which did not subside in 2020 – ultimately, they have led to the ouster of the Abdul Mahdi-led government (who continued as a caretaker until March 02 after the Parliament-nominated replacement candidate, the US-educated Mohammed Tawfiq Allawi, failed to generate sufficient parliamentary approvals). The new candidate for the Prime Minister role, Adnan al-Zurfi, might face a similar future as getting Sunnites and Kurds onboard will inevitable be a major challenge.

Graph 1. Iraq Official Selling Prices for Europe vs Oman/Dubai Average in 2018-2020 (USD per barrel).

 

1585853426-o_1e4u3ljit1grp10t52vg6ju1u7u

Source: Thomson Reuters.

After Saudi Arabia dropped its April-loading official selling prices, for many the key question was whether Iraq and Kuwait, oil exporters that routinely rely on the price signals provided by Saudi Aramco, would follow suit and embrace price cuts into crude differentials. Both did, cognizant of the risks inherent in not doing so, yet did so grudgingly for it was a price cut that went deep into the flesh of the government. Iraq dropped its Asia-bound Basrah Light OSP to a $-3.2 per barrel discount against Oman/Dubai, the lowest in years, whilst the European April price decreased by $5 per barrel to $-8.8 per barrel against Dated. With Brent prices around $20 per barrel, the prospect of selling Basrah Light to Europe for some $10 per barrel is truly disheartening (given the roughly $60 per barrel breakeven oil price). Related: $1 Oil: Saudi Arabia's Attempt To Crush U.S. Shale

 

Graph 2. Iraq Official Selling Prices for Europe vs Dated Brent in 2018-2020 (USD per barrel).

 

1585853447-o_1e4u3madd2pu1sd4h59r321v098

Source: Thomson Reuters.

While, in theory, it remains true that Iraq could partially offset all the losses incurred by the ongoing price war by ramping up production levels, yet even under OPEC+ production quotas it has more or less produced as much as it wants (in fact, Iraq was one of the most blatant transgressors of the output caps). Moreover, the oil price drop is just too big for Iraq’s economy to swallow – the 2020 draft budget was assumed to be around $135 billion, with 93 percent of government revenues coming from oil exports. The assumed annual average oil price stood at $56 per barrel in 2019. Should the Saudi-triggered differential cuts become a mainstay, Iraq now stands to garner a mere 30 percent of what it originally expected for this year. In such a case it could burn all its reserves totaling some $62 billion by the end of 2020, leaving it dependent on another IMF package.

Graph 3. Iraq’s Fiscal Breakeven Oil Price in 2005-2020 (USD per barrel).

 

1585853469-o_1e4u3n19q1hd01umarg0a6g1kbi

 

 

Source: IMF, Author’s data. Related: Oil Falls To $20 On Largest Crude Build Since 2016

Now to this multitude of problems add the swift spread of coronavirus. As of April 01, Iraq has a little more than 720 confirmed cases, with some 180 recovered cases and 52 deaths. The 7 million state employees remain a burden on the shoulders of the federal government, however, life in Iraq is paralyzed and private enterprises are on the brink. Iraq’s south witnessed its first corona case relatively late (March 09) – were the pandemic to spread around Basrah, it might even endanger oil production as supplying the project sites would become much more difficult. The coronavirus threat might curb the build-up of military antagonism, rising on the back of rumors circulating in Iraq that the United States wants to increase the number of US troops in Iraq, in a way not too dissimilar to what happened to the omnipresent protests.

The emergence and rapid spreading of COVID-19 have mollified popular anger – primarily due to people being afraid to contract a highly contagious virus at a demonstration – however, has did not alleviate the complexity of all the tasks to be resolved. The Iraqi government is running monthly deficits as high as $2 billion and with very little of the nation’s crucial industrial output being in private hands, it should come as no surprise that the federal authorities could only garner less than $50 million in donations with the aim of combatting the spread of coronavirus. Iraq has closed down its borders and the government introduced a 24-hour curfew, strictly enforced by the police, substantially limiting the last remaining lifeline of urban inhabitants – informa"l trade.

All this complicates Baghdad’s dealings with the Kurdish administration, too. Under the November 2019 deal, the Kurdish Regional Government (KRG) committed to providing the federal state oil marketer SOMO with 250kbpd of crude in return for a 12.6 percent share of the Iraqi budget – as is oftentimes the case with Iraqi covenants, this never happened. KRG claimed that it would wait until a proper government is formed in Baghdad and from there on would start complying with the agreement – a smart tactical move, seeing in retrospect how Tawfiq Allawi failed to consolidate political allies around his candidacy. A stalemate of sorts is the end results – Baghdad does not want to push too hard not to jeopardize its Kirkuk exports that go through KRG territory, whilst Erbil is waiting to finally get a counterpart that would command at least some internal power.

 

 

https://oilprice.com/Energy/Energy-General/Iraq-On-The-Brink-Of-Civil-War-As-Oil-Revenues-Evaporate.html

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Price Collapse Halves Iraq’s Oil Revenues

By Tsvetana Paraskova - Apr 02, 2020, 4:30 PM CDT

Iraq saw its oil revenues cut nearly in half in March when oil prices collapsed, even though OPEC’s second-largest producer exported more barrels of crude last month than it did in February.

According to data from Iraq’s oil ministry, cited by AFP - Agence France Presse, Iraq’s crude oil sales amounted to 105 million barrels in March. For these barrels, Iraq earned a revenue of US$2.99 billion. To compare, Iraq’s February sales of 98.3 million barrels of crude oil earned OPEC’s producer almost twice that, at US$5.5 billion.

The federal government of Iraq sold its 3.390 million bpd of oil exports at an average price of $32.73 a barrel, Iraq Oil Report quoted the oil ministry as saying.

Iraq’s oil typically trades at around $4 a barrel discount to Brent, so in the past couple of weeks, Iraq’s crude oil was selling for $21 a barrel, Oil Minister Thamer Ghadban told local media, AFP reports.   

Last week, Iraq, one of the oil producers worst hit by the oil price crash, was said to be proposing that all foreign oil firms operating in the country cut their budgets by 30 percent on the condition that crude production levels do not suffer.

Iraq, which relies on oil revenues for 95 percent of its budgetary income, is one of the least diversified economies in the Middle East. 

Iraq was also one of the OPEC members who called for an emergency meeting of the cartel to discuss ways to support oil prices, which crumbled in March to as low as $25 a barrel Brent. 

Iraq may see its wish granted soon after U.S. President Donald Trump intervened in the oil price war between Saudi Arabia and Russia and discussed the oil market with Saudi Crown Prince Mohammed bin Salman and with Russian President Vladimir Putin. 

“The Kingdom calls for an urgent meeting for OPEC+ states and another group of countries, with aim of reaching a fair solution to restore a desire balance of the oil markets,” Saudi Arabia said on Thursday, via its official Saudi Press Agency, while President Trump said that he expects and hopes the Saudis and Russia to cut back “approximately 10 Million Barrels, and maybe substantially more.”  

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Al-Ghadban: Iraq supports the call for an urgent meeting of OPEC

  
 http://economy-news.net/content.php?id=19574
Economy News _ Baghdad

On Thursday, the Minister of Oil, Thamer Al-Ghadban, confirmed that Iraq supports the call for an urgent meeting of OPEC oil producers and the producers allied to them from outside, and its support for all calls that come in this framework.
A spokesman for the Ministry of Oil, Assem Jihad, said in a statement, "Economy News" received a copy of it. "The Deputy Prime Minister for Energy and Oil Minister Thamer Abbas Al-Ghadban sent a message to the Secretary-General of the Organization of Petroleum Exporting Countries, Mohamed Barkindo, in which he affirmed support Iraq to hold an urgent meeting of the Organization of Petroleum Exporting Countries (OPEC +) in order to study the repercussions of the oil market, and to take quick measures to restore stability to the oil market and restore the balance between supply and demand. "
Jihad added, "The anger had had many contacts with the ministers of OPEC member states and allied with them from outside, and with the organization's secretary and the president of the current session, calling in it the necessity of the return of the member ministers to the dialogue table in order to work to stop the repercussions of the collapse of oil markets, and accelerate By agreeing on a formula that contributes to the stability of the oil market and rebalancing. "
He pointed out that "the oil minister expressed his confidence in the possibility of agreeing during the next meeting, on a formula that contributes to achieving positive results that are in everyone's interest and gradually restore stability to the global market."
Saudi Arabia had called for an urgent meeting of OPEC + and a group of other countries in an effort to reach a fair agreement that would restore the desired balance to the oil markets.

Number of views 18 Posted on 02/04/2020

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Iraq suspends, fines Reuters news agency over virus report

BAGHDAD (AP) — Iraq on Friday suspended the work of the Reuters news agency for three months, following a report by the agency the previous day that said the Iraqi government was under-reporting confirmed cases of the new coronavirus. 

The news agency was also fined 25 million Iraqi dinars, or about $20,800, according to a statement posted on the official Communication and Media Commission website. 

The suspension comes after Reuters on Thursday published a story citing multiple sources who said the government was vastly misreporting cases of coronavirus in the country, saying the true number of those infected was in the thousands. 

The Health Ministry said Friday there were 820 confirmed cases and 54 deaths in the country. The Reuters report said the true number ranged from 3,000 to 9,000. 

Reuters said it has not received any notification from Iraqi authorities regarding their license and were “seeking clarification on the matter.”

“We stand by our story on April 2 which was based on multiple, well placed medical and political sources and also fully represented the positions of the Iraqi Health Ministry,” the Reuters statement said. 

The Facebook page of the Iraqi commission said an attempt was made to contact the Reuters office manager in Baghdad following the report but that no one answered the call. 

The incident is the second time journalists have come under fire for challenging the official count of coronavirus cases in the Middle East. In late March, Egypt expelled a correspondent for The Guardian over a report citing a study that suggested cases in Egypt were higher than authorities had reported. 

The British paper’s correspondent, Ruth Michaelson, left the country after Western diplomats informed her that Egyptian security services wanted her to leave “immediately,” the daily said at the time.

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Tumbling oil prices leave Iraq facing a perfect storm

April 03, 2020 06:14

BAGHDAD: As crude prices plunge, Iraq’s oil sector is facing a triple threat that has slashed revenues, risks denting production and may spell trouble for future exports.

So what are the challenges facing the only significant industry in Iraq, as global oil prices fall to around $25 a barrel?

The price crash means Iraq’s monthly crude revenues were slashed by nearly half from February to just $2.99 billion in March.

The second-biggest crude producer in the OPEC oil cartel, Iraq pays international oil companies (IOCs) about $3 billion quarterly to extract its crude. With oil so cheap, the government is desperately looking to cut costs and delay payments.

Last week, the Basra Oil Company — the state-owned firm coordinating production in the oil-rich southern province — asked IOCs to accept a delay in six months’ worth of payments and cut work budgets by 30 percent, according to letters seen by AFP.

“A delay in first quarter payments is necessary, and we asked for the second quarter just in case,” said Khaled Hamza Abbas, BOC’s assistant director and a signatory to the letter, saying that oil companies had yet to respond.

But IOCs are already taking independent action, according to internal letters seen by AFP.

 

FASTFACT

 

90%

Iraq relies on oil revenues for more than 90 percent of state expenses.

Oil superpower ExxonMobil immediately asked subcontractors to “reduce overall cost” with other firms asking suppliers for discounts.

“IOCs are cash-strapped,” a source at the main operator in the south said.

However, the trouble does not stop there.

IOCs expense Iraq at the end of each quarter for what it cost to extract crude, and the Iraqi government pays them in oil.

“With the lower prices, the government would have to use virtually all its crude to pay oil companies and would have barely enough to sell,” a leading Iraqi official said.

Iraq relies on oil revenues for more than 90 percent of state expenses. Its 2020 budget was based on an estimated barrel price of $56, more than twice the current rate.

The spread of the novel coronavirus has severely disrupted rotations of key foreign nationals working at Iraq’s oil fields, risking a drop in the usual 4.5 million barrel per day (bpd) production.

To stem the spread of the respiratory illness, Iraq has shut its airports and imposed a countrywide lockdown until at least April 19, although many expect an extension.

The Gharraf field in Dhi Qar province, which has produced up to 100,000 barrels per day (bpd), is offline after last month’s evacuation of dozens of Malaysian workers by operator Petronas over coronavirus fears, according to a source at the province’s state-owned oil company.

Most foreign oil workers live on the fields in Basra, and are currently stuck there beyond their normal six- to eight-week rotations due to travel bans.

“We’re seeking approvals for an exemption for foreign staff so that we can secure the rotating teams. These companies have internal rules and you can’t keep the teams here for more than two months,” said BOC’s assistant director, Abbas.

A source from a major European oil firm operating in Basra said that a halt to foreign staff rotations would be a bigger threat to production than payment delays.

Britain’s BP, too, would have to trim production if 4,000 British nationals working in the south could no longer travel.

“There are no two ways about it,” a source with knowledge of BP’s operations said.

The third threat is a global drop in oil demand for the first time in a decade, with the International Energy Agency expecting 2020 demand to decrease by 90,000 bpd, a sharp downgrade from forecasts it would grow by more than 800,000 bpd.

“It has no equal in the history that we see such a strong decline in demand and a huge massive overhang of supply at the same time,” IEA director-general Fatih Birol said.

Two countries facing shrinking demands are India and China, where Iraq sells “the lion’s share” of its crude, according to geopolitical analyst Noam Raydan.

China, where the virus first emerged, is struggling through a huge economic slump and India has entered a three-week lockdown.

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30 minutes ago, sxsess said:

RV when Hell freezes over. 


Wtf - Have U Seen The Value Of Toilet Paper Lately ? :o 

 

Tomeco US Money Soft Toilet Paper Towel Bath Tissue Roll Bathroom Money Toilet Roll Cleaning Clothes - (Specification: 1)

 

That Cold Cash Will Freeze Ur A$$ Off ...

 

 

And Just Imagine The Value To A Nation Of Shiites ...
 

:D  :D  :D 

 

Edited by DinarThug
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All this news reveals the weakness and vulnerability of the Iraqi position. Years of stalling. The corrupt idiots who run Iraq, so arrogant, thought they were in the drivers seat. No they aren't. No putting in sensible oil laws? No getting along with other Iraqis well enough to run a country? You sure about that, Iraq? As Dr. Phil would say, "How's that working for ya?"They thought they had forever, the corruption and stupidity could continue forever. Fools. No they can't continue as per usual. That won't do. The gotta do business by the world's rules, the world doesn't have to kiss their back ends. They have it backwards. Iraq needs the rest of the world, much more than the world needs Iraq. Advanced countries....the U.S. primarily...hold all the cards. Play ball Iraq, or starve. Those are your choices. Iraq has to play by the rules of international trade: Put in proper oil laws, run your country properly, quit your bs...and shut up about it. The world has no patience for your nonsense  so comply or the world will let you starve. Do what you are told to do.:bananacamel:

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9 hours ago, DinarThug said:


Wtf - Have U Seen The Value Of Toilet Paper Lately ? :o 

 

Tomeco US Money Soft Toilet Paper Towel Bath Tissue Roll Bathroom Money Toilet Roll Cleaning Clothes - (Specification: 1)

 

That Cold Cash Will Freeze Ur A$$ Off ...

 

 

And Just Imagine The Value To A Nation Of Shiites ...
 

:D  :D  :D 

 


Yes, we are all gonna need to rethink our use of the derogatory term “toilet paper” when referring to the dinar. Obviously tp is much, much more valuable these days. 😁

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