Petrofac has been awarded a contract worth around US$370 million by Basra Oil Company (BOC) for expansion of the Central Processing Facility (CPF), located in the Majnoon Field, Southern Iraq.

Under the terms of the 34-month contract, the lump-sum engineering, procurement and construction (EPC) project scope of work includes two oil processing trains, able to process 200 kbopd.

Petrofac was previously awarded a contract in 2011 and delivered engineering, procurement and construction management for the execution and completion of the existing CPF at Majnoon.

Elie Lahoud, Group Managing Director, Engineering & Construction – Iraq, Oman and Saudi Arabia, commented:

“We have developed a significant track record in Iraq with enhanced local delivery, successfully providing services both onshore and offshore since 2010. This important contract win demonstrates Petrofac’s long-lasting client relationships and our ongoing commitment to extending our operations in this key market that complements our broad service capabilities, international experience and expertise.”

(Source: Petrofac)

By Ahmed Mousa Jiyad.

Any opinions expressed are those of the authors, and do not necessarily reflect the views of Iraq Business News.

Below is the full Arabic text and source of what was reportedly said by Abdul Alal AL-Yassiry, the Chairman of the Iraqi Centre for Economic and Investment Consultation in Karbala.

What prompts me to write this commentary is only the inaccuracy of data and information he cited regarding SOMO. In other words I am not defending SOMO; its staff can and should defend themselves. Also, I am not discussing here the corruption issue, which undoubtedly and emphatically plaguing Iraq, particularly by the political parties and provincial councils; these can be discussed separately.

I will provide what he says then make my comment.

First; He says “SOMO sales 4 million barrels daily-4mbd”!

Official data does not support this assertion at all; oil exports by SOMO during the last ten years increased from 1.879 mbd during July 2008 to 3.543 mbd in July 2018. Hence, his figure is absolutely incorrect.

Second; He also says “SOMO sales oil to the companies at $10 discount of the bourse price; this is called commission”.

This is also incorrect for the following reasons;

  1. SOMO does not sale all its oil through bourse (stock exchange) or according to bourse prices; however, SOMO sold a few shipments, of 2 million barrels each, through Dubai Mercantile Exchange-DME auctions since April 2017;
  2. SOMO’s marketing procedure and modality is primarily based on annually arranged “Term Contract” and the monthly export price is decided by a ministerial committee using at least three pricing equations for the three major market destinations (North America, Europe and east Asia) with different marker crudes taking into consideration the quality of the crude (API) and, specifically, sulphur contents;
  3. I have been following SOMO for years and never observed such discounts or “commission” of $10 a barrel! Between January 2016 and June 2017 oil export price for a barrel ranged between $22.21 and $42.2; can anyone believe or imagen that SOMO gives 45% and 23.7% of its officially adopted and declared price that easy without causing devastating outcry against it and the Ministry of Oil!!!

Third; in his explanation or justification for this “commission” it “compensates loading loses and what is known vaporisation”

Actual loading of oil into the tanker is rather rigorous operation done in the presence of the “measurement committee” and after issuing at least 13 different certificates; then SOC/now Basra Oil Company-BOC submits all these certificates to SOMO before loading oil to the tanker takes place.

Nothing in these certificates refers to vaporisation that justifies such huge discount or commission. Moreover, neither oil chemistry nor different metering instruments support his claims.

Fourth; Then he asserts, “What is important, these companies came through the political parties”

According to Iraqi and international data the annual number of companies that buy Iraqi oil- international oil buyers-IOBs during the last 15 years ranges between 34 to 45 IOBs. Most of these IOBs are well known and many of them were also SOMO’ clients well prior to 2003.

Therefore, to claim that these IOBs came through the political parties is, apart from been erroneous, it elevates the international networking and impacts of these political parties, which is laughable, but, more seriously, accuse these IOBs with “collusion”, which renders him subject to legal action.

Moreover, all IEITI annual reports (prepared by different international specialised firms) provide, among others, reconciliation of oil export revenues paid by IOBs, received by SOMO and deposited in a New York bank, and provide explanation of any discrepancies over small “materiality threshold”. None of these reports provide any information supportive of his allegations.

Fifth; He alleged that, “the political parties take $2 a barrel from that commission while the companies keep the $8”

But he did not explain or tell:

  1. When, where and how this 2:8 split of the commission was agreed between all political parties and all IOBs;
  2. Was SOMO involved in that agreement?
  3. Oil exports occur through many shipments to each IOB for each year, so what are the modalities each political party uses to secure its share from the commission for each shipment?
  4. What are the modalities for actual payments from each IOB to each political party; to which banks these payments were transferred and deposited and what are the material evidences for such payments etc.?
  5. How come there was no discrepancy in distributing that commission as if all political parties and all IOBs work in perfect harmony!!

From and based on the above comments I conclude:

  1. His knowledge and understanding of oil export system need serious revision and improvement;
  2. Allegations he made are very serious indeed and without strong, emphatic evidence, he could face legal action by SOMO/Ministry of Oil, each political party and each IOB;
  3. As he is the chairman of a consulting centre, what he had said undermines, damage and tarnish the credibility, objectivity and professionalism of his centre.

Ahmed Mousa Jiyad,

Iraq/ Development Consultancy & Research,


12 August 2018


11-08-2018  23:57  0  1102

اقتصادي عراقي :هكذا تستحصل احزاب السلطة بالعراق على الاموال

يرى رئيس المركز العراقي للاستشارات الاقتصادية والاستثمارية في كربلاء ان رواتب مجلس النواب ومجالس المحافظات لا تساوي جميعها  ارباح يوم واحد من الكومشن الذي تتقاضاها  احزاب السلطة  من البنك المركزي ووزارة النفط  مبينا  ان الانتخابات في ظل نفس الشخوص والرموز الحزبية والجهوية معناه بقاء كل شيء على ما هو عليه.

بين عبد العال الياسري لوكالة نون الخبرية بأمثلة والأرقام عن كمية المبالغ المستحصلة بطرق مختلفة بقوله ان  كل الاحزاب لديها مصارف اهلية وقد تقاسمت مبيعات البنك المركزي العراقي من الدولار حيث يباع يوميا من ١٥٠ الى ٢٠٠ مليون دولار بسعر ١١٨ الف دينار في حين وصل سعره بالسوق التجاريه الى معدل ١٢٧ الف وبعمليه حسابيه بسيطه فان معدل ارباحهم من ٥ الى ٨ مليون دولار يوميا!!! اي ١٥٠ مليون دولار شهريا ولا يقل عن ٥٠٠ مليون سنويا وبدون اي تعب فقط فواتير مزوره” , فضلا عن المنافذ الحدوديه وسيطره الصفره.

وأضاف مثلا اخر وهي شركة سومو النفط والتي تبيع يوميا ٤ مليون برميل نقط للشركات حسب سعر البورصه ناقص ١٠ دولار هو مايطلق عليه الكومشين هو مبلغ يعطى للشركات كتعويض للضائعات اثناء التحميل وما يعرف بالتبخر.المهم هذه الشركات جاءت عن طريق احزاب السلطه وهي تستوفي دولارين من الكومشن من تلك الشركات وهي تعطيها بكل سرور لانها رابحه ٨ دولارات وبحسبه بسيطه ٢٤ مليون برميل =٨ مليون دولار أرباح الاحزاب الحاكمه.

واختتم الياسري الذي كان يشغل منصب رئيس مجلس محافظة كربلاء سابقا حديثه ان من يعتقد ان مجالس المحافظات هي الممول للأحزاب الحاكمة فهو غير مدرك للامور فما تصرفه تلك المجالس ليست سوى نقطه في بحر ما تدره العاصمة لتلك الأحزاب“.

اسامة الخفاجي

Mr Jiyad is an independent development consultant, scholar and Associate with the former Centre for Global Energy Studies (CGES), London. He was formerly a senior economist with the Iraq National Oil Company and Iraq’s Ministry of Oil, Chief Expert for the Council of Ministers, Director at the Ministry of Trade, and International Specialist with UN organizations in Uganda, Sudan and Jordan. He is now based in Norway (Email: mou-jiya(at), Skype ID: Ahmed Mousa Jiyad). Read more of Mr Jiyad’s biography here.

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)

By Youssef Ali.

Any opinions expressed are those of the authors, and do not necessarily reflect the views of Iraq Business News.

President Donald Trump’s decision to pull out of the nuclear deal and sign the executive order to reimpose sanctions on Iran has had a significant impact on the global oil markets.

This move poses a severe threat to the economies of major oil exporting countries including Iraq, the second largest oil exporter in OPEC after Saudi Arabia and the third in the world after Russia and Saudi Arabia by 4.4 million barrel per day. Many analysts are reflecting on the effects that this conflict has on the economy of Iraq, which heavily relies on oil.

The sanctions mainly target the Iranian energy sector, which supplies Iran with foreign exchange and at the same time represents about 40% of revenues of its budget. The goal of the sanctions is to prevent Iranian oil exports by imposing sanctions on its customers.

Eliminating Iranian oil supplies will cause unrest in the oil markets around the world because it will lead to price surges, hence substantial economic losses on importing countries, which are already fearing a potential recession. That is why the U.S. tried to convince some of OPEC’s members to increase their supplies contrary to the recent deal amongst OPEC and non-OPEC countries to decrease production, and that in order to compensate Iranian supplies and prevent the disruption of the oil market to prevent damage to the global economy.

This move led to massive disputes between the major suppliers and pushed Iran to threat blocking oil exports from the Middle East altogether if it was to be prevented from exporting its own oil to the international market. If Iran follows through with its threat, it would mean massive losses for the Gulf countries, including Iraq whose economy is primarily depended on oil exports.

That said, completely stopping Iranian oil exports would be practically unlikely for the following reasons:

The nature of oil markets which is volatile and is based on trust. If the OPEC members in the Gulf Region, especially Saudi Arabia and UAE decided to replace the sanctioned Iranian oil supplies, the possibility alone that Iran would follow through its threat of closing the Strait of Hormuz would diminish the trust in that market. The supplies which pass through the strait would be considered as unstable, importers would start looking for alternate sources. This would destroy energy markets in the Middle East, meaning massive losses to the economies of all parties involved, including neutral states such as Iraq.

On a global basis, the mentioned encounter will damage the international economy that is fearing a potential recession, because this encounter, if it happens will cause a massive increase in global oil prices, leading to a domino effect that would create a hike in the prices of many goods and services.

This is why it is expected that while the sanctions will be implemented, all parties involved will allow for under-the-table arrangements in order to avoid such mutual destruction by allowing Iran to open an limited channel to export its oil, as it has happened in the past. Prior to signing the nuclear deal, UAE oil brokerage companies and banks played such a role before they were shut down after the recent pull out of the nuclear deal by the U.S. Allowing for such back-channels would mean that the sanctions will have their impact on the Iranian economy by disrupting the traditional oil export routs and limiting its revenue, yet allowing for a backdoor deal that will help the international community avoiding a conflict that could have grave impact on the global economy.

There is a role for Iraq to play in this crisis. The current policy of Iraq in regards to this conflict, in which it is trying to mediate between the parties involved is a wise policy. It is in the interest of nobody to escalate the situation in the Gulf region. On the other hand, Iraq could, given the circumstances,  gain enormous benefits by performing the same role that UAE brokerage companies and banks were playing, which would be a win-win for everyone involved.

In other words, Iraq can empower its private sector to establish companies and banks that facilitate the financial transactions related to the Iranian oil export, which would add important revenues to the economy of Iraq and increase the financial movement in the country; at the same time it would ensure the interests of Iran and decrease the likelihood of an encounter in the Gulf, which would serve the Gulf Arabs well.

Iraq must exploit this opportunity, especially since the Europeans countries along with Russia and China have already expressed their willingness to play this role. This opportunity could also be a significant incentive for Iraq to improve its ailing banking system to be able to implement such operation.

However, this is not possible without  negotiating with the U.S. on this issue in order to avoid being subject of the sanctions. The U.S. has in the past exempted Iraq from the sanctions for dealing with Iran, given its special circumstances. The U.S. also has expressed its readiness this time to allow some exceptions. This could be Iraq’s chance to negotiate an arrangement that serves everyone well, at least for the short-term.

On the long term however, Iraq has to find alternate routes to export its oil in order to avoid the increasingly unstable oil routes of the Arabian Gulf. Viable solutions could be the Iraq-Jordan pipeline that would start in Basra and end in Aqaba. Iraq needs to accelerate building this pipeline. Another option is the rehabilitation of the Iraq-Syria pipeline that begins from Kirkuk and ends in Banias, which, of course, would only be an option if the security in Syria improves.

Iraq is either the core, or constantly caught in the middle of many crisis that are shaking the Gulf region. These reoccurring crisis pose huge obstacles in front of rebuilding and investment. If Iraq wants to survive them, it needs to play a constructive role and aim for stability and profit for all parties involved.

Benaa Al Basra has been endorsed by the Iraqi Prime Minister’s office to make Basra’s Oil Operations Centre (OOC) operational.

The OOC has appointed Sicuro Group, a CMC-licenced, Iraq-experienced tracking, communications and information provider as the exclusive operating partner.

According to a press release from Sicuro, “this new partnership will ensure the required expertise and resources are applied to the centre in order to deliver timely information, civil and military authority liaison and coordination, incident management and emergency response to all international oil companies operating in Southern Iraq“.

The OOC will be operational from mid-August, delivering enhancements to the Basra Operations Command.

(Source: Sicuro)

Baker Hughes, a GE company has been awarded a contract by the South Gas Company of Iraq (SGC) for fast-track solutions to help the recovery of flare gas for Nassiriya and Al Gharraf  [Garraf] oilfields. The importance of the project was highlighted by the attendance of several high-level officials, including HE Jabbar Al-Luaib, the Minister of Oil of Iraq, at the agreement-signing ceremony.

As per the agreement, BHGE will develop solutions for flare gas recovery at Nassiriya and Al Gharraf oilfields using advanced modular gas processing (NGL) technology developed in the United States and Italy. The project will utilize the modular skid-mounted Gas Processing technology to build 200 million standard cubic feet per day (MMSCFD) NGL plant and is expected to be completed by 2021.

The project will support the development of a fully integrated natural gas liquid (NGL) plant at Nasiriya that will recover 200 MMSCFD of dry gas, liquefied petroleum gas (LPG) and condensate.

The modular solution will support power plants with dry gas for efficient power generation, thus helping meet the growing demand for electricity using clean fuel. It will also contribute to curtailing the amount of gas flared in the fields of Nassiriya and Gharraf that otherwise goes to waste.

The advanced technology used to develop the plant will help produce more than 1,000 tons of LPG per day and recover more than 900 cubic meters per day of condensates, which will help to meet the domestic demand for cooking gas.

The surplus LPG and condensate will be exported, generating high revenue to the Iraqi government.  Contributing to the social and economic development of Nassiriya, the project is aligned with the vision of the Ministry of Oil and the government.

H.E. Jabbar Ali Al-Allaibi, Iraq’s Minister of Oil said, that this project is important achievement for the Ministry and marks the entry of a new phase for the sector, highlighted by time optimal utilization of flare gas, which is a major milestone in the government’s extensive efforts to drive a better future for Iraq.

H.E. also highlighted the prominence of this project for the province of Dhi Qar specifically and for Iraq in general adding that BHGE will provide it latest and advanced technologies and solutions to optimize the use of flare gas at the Nassiriya and Al Gharaf oilfields recovering 200 MMSCFD of dry gas daily.

Rami Qasem, President, MENAT & India, BHGE, said:

“As a local trusted partner to Iraq, BHGE is bringing advanced technologies and solutions that can help meet the Ministry’s goals for the industry. This contract is a testament to our continued commitment to supporting the Ministry of Oil’s strategic goals by deploying advanced flare gas solutions to build the country’s oil and gas infrastructure. The project will create more than 500 direct and indirect jobs for Iraqis, build local capabilities and strengthen the local supply chain.”

BHGE is the first and only company in the world to provide a fullstream offering covering products, services and digital solutions for the oil and gas sector, from upstream, to midstream to downstream.

BHGE has been a committed partner to Iraq for more than 50 years, with three offices in Iraq – Baghdad, Erbil and the Basra –  and more than 350 employees in country, BHGE continues to deliver its latest technology and expertise to its local customers.

(Source: Baker Hughes)

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.

Iraqi Minister of Transport Kazem Finjan al-Hamami revealed July 25 that Iran has agreed to participate with Iraq in the construction of a dam on the Shatt al-Arab River — formed by the confluence of the Tigris and Euphrates rivers — to confront the ongoing water crisis. Both countries hope to achieve bilateral benefits from the project to be established in Abu Flous Port in Abu al-Khaseeb district.

The agreement comes at the heels of the popular protests organized in Basra on July 8 about the lack of drinking water and services. On July 5, Basra’s tribes asked the Iranian government to stop the flow of water into Iraqi territory, which increases the salinity in the Shatt al-Arab River.

Click here to read more.

This article was originally published by Niqash. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

By Mustafa Habib.

There are anti-government protests in Iraq every summer. But the recent batch are different, and in ways that could hinder any resolution.

The protests that have been rocking the Iraqi political establishment for almost a month now began when dozens of unemployed young men from the village of Bahila, on the outskirts of the southern city of Basra, gathered outside an oil company premises demanding jobs. The protests then spread to the city centre and widened their scope, with participants demanding better state services and regular water and power supplies.

Protests are expected in Iraq in summer. It’s so hot that a lack of potable water and power to cool things down, or keep food, is enough to drive people onto the streets in anger. But these protests – which spread from Basra to other provinces, including the capital Baghdad – are different from past ones in several ways.

For one thing, they appear to be spontaneous and leaderless, their demands are many, often non-specific and in some cases, unrealistic. And if the protestors have one thing in common, it is their distrust of, and lack of confidence in, the whole of the Iraqi political establishment. They are not targeting any one party or sector; basically, they don’t like anyone.

All of these factors make it unlikely that the protestors will be able to achieve what they want. In fact, it may hamper them in the long run.

The lack of leadership makes it hard to find anyone to negotiate with. Some of the demonstrators said they were heading to Baghdad, having organised delegations to meet with the current prime minister, Haider al-Abadi. But as soon as they said this, other demonstrators were quick to announce that the delegations going to Baghdad did not represent them.

In this case it’s hard to negotiate a solution, let alone following up on any plans.

The absence of any leadership could see the protests fade away. There is also the danger that other less well-intentioned parties could exploit the protests.

During last year’s anti-government demonstrations, the leaders tended to be members of civil society groups and secular movements. They created a culture of protest going back to 2010. The other leader of that movement was the influential Shiite Muslim cleric Muqtada al-Sadr and a large number of his followers.

But all of those former organisers are now somehow tainted by their recent win in the federal elections, held in May this year. They are now seen as part of the political process and therefore, unable to participate in this round of anti-government anger.

Al-Sadr, whose alliance won the most seats in the next parliament, had proposed postponing government formation negotiations in order to respond to the demonstrators.  But when al-Sadr tried to send a delegation of his supporters to speak with the Basra demonstrators, the Basra locals refused to receive the group. It was an unexpected rejection.

“Winning has its downsides,” says an MP for al-Sadr’s alliance, who is likely to be awarded a seat in Baghdad’s parliament; he could only speak anonymously as he was not supposed to comment on the situation. “The protestors believe we have become powerful in the country’s politics before the government has even been formed, or the parliament chosen. We do support the demonstrators and if we were asked to choose between taking power or supporting their demands, we would choose protests rather than becoming part of a government that is unable to provide the necessary services,” he told NIQASH.

Another unusual thing about the current protests, and a sign that the demonstrators are opposed to all kinds of elites in Iraq: They were even criticizing the country’s highest Shiite Muslim religious authority, Ali al-Sistani, who is usually not an acceptable target. Protestors had banners criticizing al-Sistani and asking why he had not spoken in support of the protests during the first week they happened.

Al-Sistani finally spoke out about the protests during last Friday’s sermons. He called upon demonstrators to keep up the pressure on the country’s politicians and demanded that the new government be finalized as quickly as possible, and that it be headed by a “strong and brave” prime minister. Al-Sistani also called on the politicians to think carefully about what they did in the past.

By talking about the past, al-Sistani was thought to be referring to the Sunni-Muslim-majority anti-government protests of 2013. The government did not respond to the protestors’ demands, or it clamped down violently – all of which enabled extremists to weaponize the protests. This can be seen as part of the reason for the rise of the extremist Islamic State group in Sunni Muslim areas.

Angry protestors also attacked and set alight the headquarters of Shiite Muslim political parties in southern Iraq. They did not appear to care which offices they damaged and even attacked the headquarters of the Shiite Muslim militias. Until just a few months ago the latter had been revered – and in many cases, considered above criticism within their own communities – for fighting the extremist group known as the Islamic State, and sacrificing their lives to do so.

Iraqi Prime Minister Haider al-Abadi is a more obvious target for the protestors and is often criticised. But over the past three weeks, his acting government – in power until the formation of the next one – has tried rapprochement. Al-Abadi travelled to Basra but was unable to get very far as he was besieged by angry locals. He later decided to receive delegations in Baghdad instead.

To appease the protestors, al-Abadi has fired his minister of electricity and also promised the creation of thousands of new jobs. The government has also tried to engage influential local personalities – including community and tribal leaders and local politicians – to help restore peace.

Unfortunately nobody believes the government. “They are lying to us,” Abdul Ridha al-Rubaie, a community leader in Basra, told NIQASH. “Months ago, when the budget was being discussed, the government announced that it would not be able to create jobs because of the financial crisis in Iraq. Now it is suddenly offering thousands of jobs. But if it is really unable to create jobs – as they said previously – then this promise is worth nothing.”

All this pressure from the demonstrations, as well as al-Sistani’s reproach, has meant that Shiite Muslim political parties are renewing attempts to try and form a government. The political elites of Iraq are currently riven by infighting.

Nonetheless they also remain confused. They’ve been having to try and negotiate with angry mobs and deal with al-Sistani’s call to form a government of technocrats that can change the country for the better, rather than one based on Iraq’s controversial quota system. Some political parties have even stopped saying that one of their members should get the job of prime minister because they know it angers those on the street.

And now they must deal with the even more difficult part: Iraq has never formed a government that ignores the quota system before. To take a new untried route to power, makes things more difficult. And despite ongoing calls to hurry the process of government formation up, it is quite possible that doing so according to al-Sistani’s call, will delay it even further.

By Ahmed Tabaqchali, CIO of Asia Frontier Capital (AFC) Iraq Fund.

Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

The market, as measured by the RSISUSD index, marked an important bottom in July as part of a likely bottoming process. The multi-month bank selling shifted into high gear. This intensified into a frenzy, climaxing by the middle of the month with the liquidation of a large foreign position in the Bank of Baghdad (BBOB) – one of the top banks on the Iraq Stock Exchange (ISX). At the worst point in July, BBOB and the index were down -24% and -12% respectively for the month, after which both reclaimed these losses to end up +2.4% and +0.5%.

The selling in the banking sector over the last few months, driven by concerns over declining FX margins (as explained here in the past), was paced by consistent foreign selling in BBOB. The size of the selling exaggerated the stock’s declines which had a knock-on effect on other banks which declined in-tandem and dragged the market with them given the sector’s dominance of trading on the ISX.

Local retail trading is dominated by speculators, yet locals tend to appreciate the true values of local assets especially at extreme valuations. At the worst point, BBOB’s market capitalization was equal to about 0.3x Book Value, 8.5% of assets and 15% of cash (based on the trailing 12 months) which would suggest that the stock was discounting some sort of end of the world type event. The locals, aware that such a catastrophe was not around the corner and that the decline was a function of a portfolio liquidation, raised funds from family, friends and banks in order to buy BBOB. Joined by a few foreign investors, undoubtedly aware of the same valuations, the combination absorbed all the significant selling, after which the stock began to climb.

Irrespective of BBOB’s strong position among local banks, it too suffered from the same forces that crushed the sector’s earnings, as discussed in last month review of banks (Of Banks and Budget Surpluses). Furthermore, it had its share of company specific issues and structural weaknesses that were exposed by the pains of 2014-2017, including the recent pressure on FX margins. The bank’s focus on addressing these weaknesses at the expense of revenue growth is hindering near term growth. However, given the quality of its management, strong position with high quality customers (in particular foreign companies) and the strength of its franchise, it should emerge in a position to resume growth in the recovering economy.

As explained last month, the banks’ leverage to the economy crushed their earnings. In particular, the double whammy of the ISIS conflict and the collapse in oil prices squeezed government finances as expenses soared while revenues plummeted. The government resorted to dramatic cuts to expenditures by cancelling capital spending and investments which, due to the centrality of its role in the economy, led to year-year declines in non-oil GDP of -3.9%, -9.6% and -8.1% for 2014, 2015 and 2016 respectively. Ultimately, the government had a cumulative deficit of around USD 41bn during this period and accumulated significant arrears to the private sector in the process.

The same leverage should work in reverse as the expected budget surpluses of USD 28.5bn for 2017-2019 should have simulative effects on economic activity which ultimately should translate to stronger future earnings for the banks. These were discussed in further details at: “Forget the Donations, Stupid.”

For BBOB, the changes for the worse during the years of conflict can be seen through the three charts below that look at loans/non-performing loans (NPL’s), deposits and trade finance and their association with budget surpluses/deficits. BBOB Data as supplied by the research team at Rabee Securities is gratefully acknowledged. Data from 2010-2014 are based on Iraqi accounting standards, while data from 2015-2017 are based on IFRS.

BBOB’s loan book growth peaked in 2015, while NPL’s grew at the height of the crisis in 2016. The sharp decline in the loan book since then exaggerated the growth of NPL’s as a percentage of loans, as NPL’s declined in absolute terms marginally in 2017 vs. 2016.

Bank of Baghdad: Loans, NPL’s & Loan provisions 2011-2017

(Source: Central Bank of Iraq (CBI), Rabee Research, Asia Frontier Capital (AFC))

Though NPL’s are relatively high, even during the relative boom times, loans as a percentage of deposits have been very low at the mid-20%’s level as can be seen below.  Moreover, most of these loans are collagenized by property as most banks’ loans are in Iraq where the norm is for collateral value at 2x the loan. BBOB’s relatively large NPL’s were a function of the relative size of their loan book which meant a larger exposure to riskier loans taken during the boom years.

Bank of Baghdad: Deposits and Loan/Deposit ratio 2011-2017

(Source: Central Bank of Iraq (CBI), Rabee Research, Asia Frontier Capital (AFC))

The decline in deposits as a function of the economic contraction was made worse by the decline in BBOB’s trade finance business as that meant the loss of funds deposited as partial collateral required for the provisioning of trade finance.

Trade finance, once an engine of growth for the bank suffered as a result of the sharp economic contraction brought about by investment cuts and the slowdown in consumer spending.

Bank of Baghdad: Trade Finance 2011-2017

(Source: Central Bank of Iraq (CBI), Rabee Research, Asia Frontier Capital (AFC))

It’s logical to conclude that the sea change which has taken place in the government’s financial health would reverse the trends that affected the sector’s earnings as the significant stimulus to non-oil GDP should lead to sustainable economic activity which would provide BBOB room to recover, address its weaknesses and grow.

The question- when will these budget surpluses find their way into the economy through government action- has been partly answered by the government’s response to nationwide protests that erupted in early July, demanding the provision of services. The first response was to allocate USD 3bn to the city of Basra to fund long delayed infrastructure projects, a USD 669mn injection into the country’s housing fund to provide about 25,000 housing loans, plus a number of smaller projects in the southern governorates.

The eruption of protests in the city of Basra and their spread across the southern governorates right to Baghdad has, as is the usual case in all Iraqi events, led to two polar views. The first dismisses these as the usual ritual of summer protests ignited by the scorching heat that would soon settle with a few government handouts and the end of summer – echoing perhaps an old Iraqi politician who likened Iraqis’ anger to effervescent salts that erupt with a great fanfare before settling down. The second warns of the emergence of instability given that the Iraqi political establishment is incredibly slow to change its bad old habits, if at all, but that the young angry population is running out of patience.

While both arguments have merit, current protests should be seen from a wider prism in that they are the fourth instalment of a protest movement that began in 2010 and developed in both scope and maturity. The last incarnation in 2015 had a profound effect on how the election was fought and its ensuring results, as it led to the break-up of the ethno-sectarian monolithic blocs that were dominant over the past 15 years and which were at the root of Iraq’s instability. Thoughts supporting this line of thinking appear in (The Protest Movement, the Politicians and the Elections).

The influential religious leadership has supported the protest movement calling for the quick formation of a government focused on meeting the demands of demonstrators. This should hasten the formation of the government ending the current uncertainty. However, irrespective of how it is formed, the government would have the financial wherewithal to start the reconstruction of the country and the provisioning of infrastructure in the form of cumulative two-year budget surplus of USD 18.8bn by end of 2018- equal to a stimulus of 14.5% of non-oil GDP once reconstruction projects are underway. These would be enhanced by potential budget surplus of USD 9.3bn in 2019 or a further 6.8% stimulus to non-oil GDP. (Details available in a recent article).

It worth noting that while Iraq has its share of challenges, none are unsolvable in that the key issue of the last few years has been a sequence of crises that have forced successive governments into short -term solutions without providing overall long-term solutions. For instance, the current demonstrations were started by anger over the lack of electricity coverage beyond a few hours each day. Yet, “of 26 gigawatts installed generation, theoretically enough to meet the current 23 GW of demand, less than 17 GW is operable because of lack of fuel, maintenance and transmission capacity: source.” As such, these are addressable in a reasonable timeframe by a focused government with a clear mandate which could emerge given the current pressures from the electorate supported by the religious authority.

Finally a report on Iraq’s debts addresses a number of misconceptions on its debt profile that would have a huge implication for its ability to fund the needed reconstruction and the provisioning of services is here (Understanding Iraq’s Debt).

Please click here to download Ahmed Tabaqchali’s full report in pdf format.

Mr Tabaqchali (@AMTabaqchali) is the CIO 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 non-resident Fellow at the Institute of Regional and International Studies (IRIS) at the American University of Iraq-Sulaimani (AUIS). He is a board member of the Credit Bank of Iraq.

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.


The Cabinet held its weekly regular meeting in Baghdad on Tuesday under the chairmanship of Prime Minister Haider Al-Abadi, and discussed progress in the implementation of measures to improve the delivery of essential services across Iraq.

It approved an allocation of 4 billion Iraqi dinars for the comprehensive and immediate maintenance of the soil barrier with Iran to protect Basra’s farms and oil fields from polluted water from the Iranian side.

It also voted to fund several key projects in Basra, Dhi Qar, Al-Muthana and Najaf provinces, and received a briefing on the Nebras petrochemical complex in Basra which will provide thousands of jobs and boost the local economy.

The Cabinet also discussed current and future plans to support the agricultural sector across Iraq.

The Cabinet approved the establishment of a consulate for the Republic of Lebanon in the city of Najaf.

(Source: Iraqi Govt)