Page 7 - DMEA Week 04 2020

DMEA COMMENTARY DMEA
displeased. Its oil production of around 4.5mn bpd will soon hit a ceiling of around 5mn bpd, with more growth achievable only by install- ing big-budget infrastructure projects that centre on pipeline capacity and water injec- tion into oilfields to boost reservoir pressure. There are some interim steps that Iraq could take, such as increasing the use of industrial water and water recycling, or expanding capacity at the Qarmat Ali Water Treatment facility, according to Ahmad Mehdi. But nei- ther is a substitute for the big projects that Iraq really needs.
Several months before the January 3 drone strike, the IEA had already revised down its fore- cast for future Iraqi oil production, from 7.5mn down to 6mn bpd by 2030. The heightened secu- rity risks and Iraq’s increased anti-American statements may well force the IEA to push that forecast down further.
The threat to Iraq’s energy imports from Iran if the US does not extend waiver
Threat of waiver cancellation
Iraq may have serious problems in securing its energy needs if the US does not extend a waiver for an Iraqi bank to process payments for the country’s imports of electricity and natural gas from Iran.
Major Iraqi power plants are dependent on Iranian natural gas supply, and Iraq imports elec- tricity from Iran, as Baghdad’s power generation is not sufficient to ensure domestic supply.
The US has regularly extended the waivers for Iraq to continue buying natural gas and elec- tricity from Iran, even after Washington slapped sanctions on Tehran and continued to ramp these up over the past year. The waiver for the Iraqi bank handling the payments to Iran in Iraqi dinars expires next month. If the US does not extend the waiver, the bank – Trade Bank of Iraq (TBI) – will stop processing payments, its head, Faisal al-Haimus, told AFP on January 21. “If the waiver ended, of course TBI will not pay for any gas or deal with any Iranian entity over gas or electricity. Absolutely,” the bank’s executive told the agency. The bank cannot afford not to com- ply with all regulations, including US sanctions on Iranian entities, he said.
The sanctions typically work by cutting off access to the US banking system of persons or entities that deal with sanctioned countries and businesses, as is the case with Iran.
Iraq’s energy sector may become collateral damage from the recent US-Iran tensions which unfolded on the country’s territory. President Trump threatened sanctions on Iraq earlier this month, after the latter’s parliament called on the government to expel foreign troops from the country.
If the US follows through with its threat, it could block Iraq’s access to a US-based account, where Baghdad deposits its oil revenues that make up 90% of the Iraqi budget. Such a sanc- tion move could cause an economic “collapse” in Iraq. ™
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