Page 10 - DMEA Week 19 2020

DMEA COMMENTARY DMEA
Iraq is also in a dispute with the semi-auton- omous Kurdistan Regional Government (KRG) over oil sales and the distribution of oil reve- nues, including payments of KRG salaries by the Iraqi federal government. The KRG has said it will take part in Iraq’s OPEC+ cuts, which will amount to 1.061mn barrels per day in May and June, capping Iraq’s oil output at 3.59mn bpd. The cuts will be eased gradually up until April 2022.
The World Bank estimates that Iraq’s GDP will shrink 9.7% this year, marking the econo- my’s worse performance since 2003.
There has also been a spike in Islamic State (IS) attacks, as insurgents look to take advan- tage of security forces being focused on the pandemic.
The spike in attacks coincides with the Islamic holy month of Ramadan, when jihadists typically step up their activities; movement restrictions and economic pressures linked to the Covid-19 pandemic; constraints on the deployment of US troops connected to health and political issues; and the ongoing political wrangling over the new Iraqi government.
IS appears to be exploiting some or all of those factors in an attempt to stage a comeback. The group’s weekly publication, al-Naba, has
highlighted what it called the “downsizing” of the US presence in Iraq and “restrictions” on troop movements.
IS has also told militants that governments across the world are currently too preoccu- pied with battling the coronavirus to focus on counter-terrorism.
Priorities
Kadhimi has set out priorities for his govern- ment in a programme that has been published on the parliament’s website.
Iraq should open “serious negotiations” to restore the country’s share of oil exports, which fell dramatically in April as a result of low fuel demand and a lack of storage space, forcing refineries to make deep cuts to oil runs.
The government also wants to “form a negoti- ation delegation to discuss the issue of amending the licensing contract rounds with oil companies inlightofthecurrentchangesinglobalmarkets.”
These technical service contracts have been a source of contention for years. Under them, international oil companies (IOCs) such as BP, China’s CNPC, Italy’s Eni, ExxonMobil and Rus- sia’s Lukoil are paid for the oil they produce at fields and received quarterly payments at a fixed per-barrel fee linked to production levels. This means that if Iraq imposes cuts to production under the OPEC+ deal, it may have to pay the IOCs for oil that was not produced.
The government also wants to draw up and submit to Parliament a draft Iraqi National Oil Company law, and co-operate with international
financial organisations such as the IMF and the World Bank “to develop programmes to mini- mise the impact of the economic crisis.”
A key priority will be implementing Iraq’s oil-for-projects agreement with China. The two countries agreed last year to set up a $10bn oil-for-reconstruction fund, which would involve Iraq delivering up to 100,000 bpd of oil to China in return for Chinese investment in new projects, including refineries.
A draft law to create a reconstruction council to oversee the fund was submitted to Parliament in 2019, but the council has not yet been estab- lished. Among the projects for which Iraq wants to use the Chinese fund are new schools, hospi- tals, railways and a new 150,000 bpd oil refinery in Kurdistan.
Iraq is looking to build several new refiner- ies, as its oil processing capacity was severely curtailed by damage to its largest plant in Baiji, north of Baghdad, when it was captured by IS militants in 2014. The facility was recaptured the following year and resumed partial operations in 2015.
Iraq currently relies on the Doura refinery in Baghdad and the Shuaiba plant in the south of the country to cover its needs. In addition to the Kurdish project, It has mooted plans for refiner- ies in the port of Fao on the Gulf, the southern region of Nasiriya, the western Anbar Province and Qayara, near the northern city of Mosul.
A lot rests on Iraq approving a candidate for oil minister quickly, so that the government can start trying to deliver on these goals. Political indecision now will result in a significant cost further down the road. ™
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Week 19 14•May•2020