The central bank announces its sales rise to 191 million dollars
9/18/2018


The central bank’s foreign currency sales rose Tuesday to $ 191.56 million from $ 106.19 million in Monday’s auction of $ 85.37 million.

The exchange rate was 1190 dinars per dollar in the auction held with the participation of 35 banks and one company only for financial transfer, "the bank said in a statement.

The statement added that ‘these sales are the results of the auction on Wednesday,’ explaining that ‘total sales totaled $ 225.96 million’.

He added that ‘the volume of funds sold to strengthen banks’ assets abroad amounted to 190.06 million dollars, while the total amount of cash sold at $ 1.5 million’.

He explained that ‘the sale of amounts transferred to the accounts of banks abroad at the price of 1190 dinars per dollar, while the cash sale will be at the same price’.

http://www.ikhnews.com/index.php?page=article&id=172260

Governor of the Central Bank of the {morning}: cash reserve is approaching 60 billion dollars
9/17/2018

An initiative to rehabilitate Baghdad bridges in coordination with banks
Baghdad / Abbas Abboud and Ahmad Abed Rabbo
The governor of the Central Bank Ali al-Alaq that the size of reserves of hard currency up to 60 billion dollars, and covers 170 percent of the size of the mass of the local currency, while revealing the existence of a plan for the future restructuring of the Iraqi currency.

Al-Aalak said during a dialogue with him "morning", that the Central Bank will launch in coordination with the banks initiative to rehabilitate the bridges of Baghdad, similar to the Baghdad initiative launched to rehabilitate the public squares. Of things to be calculated for the central bank is the exchange rate stability, how is it? What are your future plans in this direction?

– The stability of the exchange rate is one of the macroeconomic features, and is an important indicator of the stability of the country economically, which makes it a key task of the Central Bank, as stated in the law, because it is directly linked to the purchasing power of citizens, This means that any disruption in the standard of living of the citizens may increase the challenges faced by the government, so we have worked hard to stabilize the exchange rate and reduce inflation rates. .


We have succeeded in overcoming a very complex and challenging phase, especially when the country’s oil revenues have fallen to 70 percent in some months, in light of the war against terrorist gangs by setting a set of balances that have made inflation no more than 2 percent.



Will the value of the Iraqi dinar remain the same or is there an intention to raise
it?
– The exchange rate in Iraq follows a monetary policy based on the fixed exchange rate of the dinar and this does not mean absolute stability, may come under some circumstances may increase or reduce it according to various economic data.


We are currently moving towards no change in the value of the dinar, as it is not right to make changes under completely unstable conditions, which may confuse the overall situation. Why are not there large quantities of small coins, and what is the reason for the absence of metal groups?

– We have small currencies in the appropriate quantities, but the frequent movement and circulation and use and lack of attention to lead to damage quickly, as the Central Bank of Iraq after 2004 to mint coins in large quantities but did not receive acceptance or popularity in the local market, which caused losses, Because the market has been accustomed to paper currency making it difficult to market the coin.

So the central bank recently put in place a plan to compensate for the existing small categories damaged, as next month will be large quantities of them will meet the needs of the market completely.

On the other hand, we receive a lot of damaged banknotes and replace them with new banknotes through an expanded committee that checks them to make sure they are correct. Our doors are open to citizens to receive any amounts of damaged currency. Where does the central bank print the local currency?

– We print in international companies
, possess enough capacity to print banknotes within the advanced security standards in France, England and Germany, the design is by the Central Bank, and the paper used in printing is very high specifications.

The Central Bank is trying to print non-counterfeit paper. We have succeeded in this. The counterfeit quantities are very few and negligible, and we have very advanced equipment in the electronic and electronic detection of counterfeit currency, called comprehensive machines, so we do not rely on human effort Just.

The central bank has recently offered the category of 50,000 dinars, is there an intention to put the category of 100 thousand? – These ideas are traded by the Central Bank, but at the present time, there is a tendency in some countries to reduce the categories of currencies so as not to be stored or counterfeited, and that the currencies of small groups, may lead the citizen to bid farewell to banks for the difficulty of storage.

But generally the central bank has a future plan to restructure the Iraqi currency, including the deletion of zeros, but that plan needs to deliberate steps, and a stable situation in order not to be exploited in the fraud and other.

How does the dollar sell in the central bank or what is known as the currency auction? – It is a common mistake now to talk about the currency auction in some media and social networking sites, while this auction has been suspended since 2006, but what is happening now is the process of financing the foreign trade of the dollar, covering the country’s needs for import in addition to the requirements of travel and treatment And the transfer of profits resulting from investments and others.


The government gets the dollar through the sale of oil and then replace the dollar with the Iraqi dinar from the central bank, because the balance of the state’s financial dinars, and then the central bank to withdraw the local currency from the market and replace them in dollars, to maintain
monetary stability .

The process of withdrawing the dinar by meeting the market need of the dollar represents a revaluation of the local currency, and this method does not represent the diligence of the Central Bank, as its law provides for the sale of foreign currency in a simple and unconditional manner, in addition to the existence of an agreement between Iraq and the IMF International approved by the House of Representatives in 2008 provides for this.


The situation in Iraq is different from other countries, because of the lack of diversity in the financial revenues of hard currency other than oil, as the Iraqi private sector is unable to support the local market in dollars through imports, which makes the market depends entirely on trade finance Through the
central bank .

How much is the central bank’s reserve of foreign currency and what is the size of the local currency’s currency?

– The size of the cash reserve of foreign currency is always measured to the size of the currency mass of the local currency in the market, in addition to other international standards, especially as the International Monetary Fund recently developed a new standard, which added the ability of the state to cover trade and debt repayment.

As for the Central Bank of Iraq, it has a reserve of foreign currency is very comfortable within international classifications and is ahead of other countries, compared to the mass of cash offered by the local currency, as the reserve is close to 60 billion dollars, compared to 43 trillion dinars, which means it covers 170 percent of the size The monetary bloc, especially as the Arab Monetary Fund considers Iraq to be a country that exaggerates the size of reserves of foreign currency.
Are there any bodies that monitor the reserves of foreign currency and can the central bank act in such funds?

– The supervision is subject to several levels, foremost of which is the Internal Control Department of the Central Bank, in addition to an audit committee composed of independent observers who report to the Board of Directors of the Bank.

The Committee also supervises the Internal Audit Department of the Central Bank. In addition, On the final accounts of the Central Bank, the data of this office are internationally accredited by the international financial institutions, not to mention the ongoing monitoring by the Office of Financial Supervision.

The Central Bank of Iraq is the most institution subject to the multiplicity of regulatory bodies, and can not be disposed of any amount except within the standards provided for in the law and adopted internationally, so the rumored lack of reserve or conversion are all false rumors.

What happened during the past years, from the decline in oil prices sharply, so did not stop the revenues in some months to fill the salaries of employees, made the Central Bank to two options, either the collapse of the situation or intervention to save, so the government issued treasury transfers worth 20 trillion dinars,

And we bought them from the market, which affected the size of the cash reserve at the time, but we maintained the balance by maintaining the reasonable level of this reserve in exchange for meeting the need for the budget and maintain the exchange rate and inflation rates, this achievement is recorded to the Central Bank and has become highly praised by international organizations. How do you evaluate your relationship to the country’s fiscal policy?

– There is a close relationship, but along the line fiscal policy negatively affects the monetary currency, because the first may take certain trends do not benefit the second, for example when he notes a decline in foreign exchange reserves draws criticism to the central bank, but in fact When the budget law recognizes a financial deficit and provides for the deficit to be met by treasury transfers,

it means that such remittances will be financed by the central bank. Is the number of private banks exaggerated, and how do you evaluate their work? – When I took responsibility, I found that the number of private banks and transfer and exchange companies outweigh the need of the market, as we did not grant any new license to open a commercial bank or leave a banking company, and we have canceled the financial transfer companies, with an intention to restructure banking companies, leading to control The biggest is there is a plan to merge some banks.


But granted us licenses to open a number of Islamic banks based on the facilities provided by its law as the Council of Representatives put a paragraph to help establish the reduction of capital required at the establishment.

There are currently 70 banks working in the country, 20 of which are branches of foreign banks, but most of them are newly formed, so did not reach the level of ambition, and these banks worked under exceptional circumstances experienced by the country. The initiatives of private banks to lend to citizens are very limited. Why?

– As you know, the main task of banks is to provide credit through the granting of loans and other services, in return, take the money of depositors and give them a percentage of interest, but Iraqi banks in general have great difficulty in the practice of this activity, when you grant a loan, often does not meet the borrower to pay on Despite the large guarantees taken by banks and the high interest rate, as borrowers could be up to 20 percent.

The problem is that when the bank starts its actions against the borrower, for example, the property is facing a significant delay in legal proceedings by other parties, in addition to tribal or partisan threats, which makes banks afraid to grant loans.

Recently, there has been talk of replacing the dollar with other currencies in remittances with Iran because of US sanctions. How will this happen?

– The transfer of the dollar from Iraq to Iran has been suspended since 2012, and the Iranians are aware of this, as the conversion in other currencies, because any transfer of dollars will pass the US Federal Reserve, which leads to the suspension of the transfer.

Is there a control of the Central Bank in its branches in Kurdistan? – There was an abnormal situation in the status of branches of the Central Bank in Erbil and Sulaymaniyah, where it belongs to the Ministry of Finance in Kurdistan and this represents a violation of legal and constitutional, at a time that all the countries of the world have one central bank,

so we moved with the provincial government and agreed with them to close those branches, And the opening of a new, so the Central Bank opened its new branch in Erbil and will open another branch in Sulaymaniyah, as the central bank is currently playing its full role in Kurdistan.

What is the role of the Central Bank in supporting community initiatives and activities, such as the Baghdad Initiative launched by the Association of Private Banks?


– We are working in the Central Bank to stimulate social contributions and initiatives by the banking sector and other financial institutions. We have established an optional fund called Tamkeen, in which banks and exchange companies participate in monthly amounts. We have established an internal system for this fund and a board of directors.

As well as environmental and youth.
Within this fund, we coordinated with the Ministry of Agriculture to dig artesian wells in some Iraqi provinces to contribute to solving the water scarcity experienced by the country, as we seek to launch the initiative to rehabilitate the bridges of Baghdad in order to appear properly.

Honored by the Union of Arab Banks as the best Arab central bank governor, what are the most important achievements that led to this honor?

– We, as a central bank, have close relations with central banks and international or Arab organizations, and those relations we have worked to deepen in order to benefit from those institutions in the transfer of the central bank from a bank that works with the mechanisms, standards and objectives of the twentieth century to another working in the 21st century,

We have succeeded for a long time in introducing new functions and tasks in the Bank’s work related to financial and monetary stability, developing methods of monitoring and abiding by the rules, methods and standards of combating the laundering of illiteracy.

Terrorism financing, risk management, overall quality and economic modeling
.
The US Treasury Department said that the efforts exerted by the Central Bank in this regard are equal to the effort it has made in its previous history, as Iraq was classified in the financial organization responsible for the classification The countries within the framework of money laundering, within the gray area, and his way to enter the black area, to become a financially isolated area and the Iraq assessment report contains 700 observations.


In the past few months, we have become the normal follow-up region, as we have been in the world, in the face of the great challenge that the country has experienced in terms of security and finances. So we have become very impressed with these financial institutions. , Federation of Arab Banks.

http://www.alsabaah.iq/ArticleShow.aspx?ID=163226

Indicators of economic resilience and stability in the monetary system

9/13/018

The
central banks in the countries of the world are mainly aimed at achieving monetary and financial stability through their programs and strategy aimed at maintaining stability in the exchange of their local currencies against other foreign currencies and building sufficient foreign reserves in accordance with international special standards issued by the International Monetary Fund.

Other criteria related to confronting crises, challenges and economic and political shocks in their countries, controlling stable rates of inflation and interest rates, applying compliance regulations and rules, combating money laundering and financing terrorism.

The Iraqi Central Bank’s march over the last four years proved that it is proceeding steadily to achieve the stated goals.

This proves that Iraq has gone out of the monitoring and follow-up area to the regular follow-up area every two years, like other banks in the world according to
FATF.

The Central Bank is also honored to be the best Arab portfolio for 2018 and to occupy a leading position in the world according to the 2018 Global Finance Report.

This is expected to be reflected in the efforts of the Central Bank and the Association of Banks and Banks to restore international banking relations with
correspondent banks .

And because of the international political changes, most notably US sanctions imposed on Iran and Turkey; to be accurate and non-critical economic analysis of the reality of monetary stability in Iraq and the effects of the new shock (sanctions) expected on the exchange rate of the Iraqi dinar, which has been stable since 1/1/2018 and is still strong and stable Despite international and domestic political shocks.

In order to ensure that the expectations are not taken in an extreme manner and create a state of fear among the public and the banking sector, and through an economic and analytical analysis of the state of stability in the exchange rate and from a neutral and transparent point of view, we note that the high independence of the Central Bank on the one hand and the availability of foreign reserves on average,

The monetary bloc in circulation on the other hand and to cover the imports according to the standards of the International Monetary Fund, as foreign reserves are fully insured and Iraq occupies the fourth place in the Arab and is currently about $ 58 billion and grows day after day.

In addition to the strength and recovery of the Iraqi dinar during the past seven months and deal with the wisdom and responsibility and independence by the Central Bank will prevent the impact of international conditions and sanctions on neighboring countries.

On the reality of monetary stability, which began to be achieved during the first half of this year with the emphasis that the Central Bank does not have a deficit in the budget, but vice versa is currently achieving a surplus in the budget because of high oil prices.

All this represents the real guarantees to protect the exchange rate and to face this new shock will be overcome and exceeded the economic and security shocks suffered by the Iraqi economy in
previous years.

http://www.alsabaah.iq/ArticleShow.aspx?ID=163036

The exchange rate of the dollar against the Iraqi dinar on the day of 8 – 8-2018 Friday
8/31/2018

Foreign exchange markets in Baghdad, on Friday morning, stabilize the exchange rate of the US dollar against the Iraqi dinar.

The market price in the Kifah Exchange in Baghdad 1206 dinars to the dollar, or 120 thousand and 600 dinars per hundred dollars.

The prices of selling and buying dollars in banking companies were:
the sale price of one dollar 1210 dinars, or 121 thousand dinars, for one hundred dollars.
And the purchase price of the dollar at 1200 dinars, or 120 thousand dinars for one hundred dollars.

Prices of foreign, gold, oil , currency, {even the preparation of this news}:

Euro Global Price: 100 EUR = 116.73 USD

GBP Global Price: 100 pounds = 130.22 dollars

Turkish Lira Global Price: $ 100 = 638.67 Turkish Lira

price of an ounce of gold worldwide = $ 1204.10

price Brent crude oil = $ 77.70 The
price of a barrel of US crude oil = $ 70.30.

http://pressiraq.net/p=161711


Central bank sales are rising to $ 140 million
8/26/2018


The central bank’s foreign currency sales rose to $ 140.62 million on Sunday, against $ 123.11 million at Sunday’s auction, at $ 17.51 ​​million.

"The exchange rate was 1190 dinars per dollar, in the auction held with the participation of 34 banks, and one company only for financial transfer."

"These sales are the results of an auction on Monday," the statement said, adding that total sales totaled $ 175.02 million.

He added that ‘the volume of funds sold to strengthen the bank balances abroad amounted to 138.62 million dollars, while the total amount of cash sold was about 36.4 million dollars’.

He pointed out that ‘the sale of amounts transferred to the accounts of banks abroad at the price of 1190 dinars per dollar, while the cash sale will be at the same price’.

http://www.ikhnews.com/index.php?page=article&id=171438

By Ahmed Tabaqchali. Originally published by Iraq in Context; re-published by Iraq Business News with permission. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

Current analysis of renewed Iran sanctions often overlooks the wider context of Iraq’s regional trading relations. 

The extent of Iraq’s compliance with US sanctions on Iran has raised concerns regarding the loss of Iranian exports to its economy. However, Iraq’s trade with Iran, when looked at in the context of the wider region, shows these concerns in a different light.

It is arguably smaller than is widely perceived, especially given the long border between the two nations and the supposedly strong influence of Iran in Iraq, something which is contested.

There are many variables, following the imposition of sanctions, that will influence Iraq’s economy and trading relationships, making it difficult to examine any change in Iraq-Iran trade in isolation. Some of these variables are China’s response to these sanctions – its continued or increased purchase of Iranian oil or to impose tariffs on US crude- in light of its escalating trade war with the US.

Add to this the effects on oil demand from a change in world growth prospects as a result of an intensifying US-China trade war. Balancing or complicating events is the success of Saudi Arabia in sustaining increased oil production, or Iraq’s ability to increase its oil production. Finally, the state of the Turkish economy and the declining value of the Turkish Lira (TL[i]), in light of recent events, will play essential roles given Turkey’s substantial trading relationship with Iraq.

Much of the recent coverage of Iran’s trading relationship with Iraq refers to the significant annual exports of USD 12bn- which while significant, should be taken in the framework of Iraq’s overall imports and the trend of these imports from 2003-2017 (chart below). Additionally, Iran’s trade like, all other neighbouring nations’ trade with Iraq, is one-sided to its benefit. Iranian exports to Iraq are made up of goods and services, with the goods element at about USD 6bn for the 12 months ending March 2018[ii], which corresponds to about 15% of Iraq’s imports for 2017.

Iraq’s imports exploded six-fold from 2003 until 2013 to satisfy the population’s demand for goods after the isolation of the years under the sanctions. All of Iraq’s neighbours: Turkey, Iran and Jordan saw massive growth of exports to Iraq during this period for all types of goods, from fresh foods to finished products, given the near destruction of Iraq’ capacity to produce during the 14 years of sanctions and the ensuing civil war.

Iraqi Imports 2003-2017

 

(Source: https://tradingeconomics.com/iraq/imports)

Iraq imports peaked in 2013, after which the twin shocks of the ISIS war and the collapse in oil prices crushed the economy and with-it Iraq’s demand for goods. The effects of the ensuing ISIS conflict on overland trade routes affected the relative performance in the following years of each country’s exports.

The transit routes and volumes for 2014 (before the full effects of conflict and economic contraction) show the relative importance for each route, not only for the trade with a particular country, but that country’s additional role as a source of re-exports (chart below). In particular, Turaybill for Jordanian exports and re-exports coming from Aqaba, Kuwait’s Safwan, and Basra as a route for world exports as well as for UAE exports and re-exports from Jebil Ali. By 2014 exports from Syria ceased with the exception of the Al Waleed crossing, until it too ended when it fell under ISIS control in May 2015[iii]. Trade with Saudi Arabia ended with the invasion of Kuwait in 1990.

Iraq: Trade transit routes & volumes 2014

 (Source: Chart taken from a World Bank Report[iv])

Iranian exports peaked in absolute terms in 2013, declining by about 6% by 2017, while Iraq’s imports declined by 36%, with the result that Iran increased its market share from 11% in 2013 to 15% in 2017. However, this has more to do with the trade routes than any special relationship that Iraq might have with Iran or Iran’s competitiveness. The ISIS occupation closed Iraq’s trade route with Jordan, Syria and degraded the value of the routes with Turkey given ISIS’s occupation of Mosul and surrounding areas.

The growth in Iran’s exports from 2004 is shown in the chart below (data are based on the Iranian calendar up to the year 1395, ending in March 2017). Latest reports indicate that the figure was almost unchanged for the year ending in March 2018. Yet, Iraq’s overall imports recovered by 13% in 2017 vs 2016, and its imports from Jordan and Turkey increased by 8% and 19% respectively. All of which put the relative value of trade with Iran in context.

Given Iran’s natural geographical advantages from the long border and its supposed hegemony over Iraq, it can be argued that it should have accounted for much more of Iraq’s imports or at least cemented its conflict enhanced position when Iraq’s imports recovered. Instead it lost market share from 2016 to 2017, implying that it would continue to lose market share without the imposition of sanctions, and as such the sanctions would only accelerate this trend.

Iranian exports to Iraq 2004 – 2016

 

(Source: http://www.iraqbase.com/trade_with_iraq/iraq_tradition.aspx#c_31)

While Turkey’s exports of around USD 12bn in 2013 were twice Iran’s levels, most of these exports were destined for the Kurdistan Region of Iraq (KRI) in which Turkish goods and companies played a significant role in the economic boom the region witnessed until 2014.  The KRI, in 2017, accounted for 67% of all Turkey’s exports to Iraq up from 50% in 2007[v].

Turkish exports to Iraq suffered significantly due to the triple shock to the KRI’s economy – the loss of federal budget transfers, the ISIS conflict and the oil price collapse – as well as from the contraction of the Iraqi economy. Turkish exports declined 36% in 2013-2016 vs a decline of 43% in Iraq’s total imports, increasing its market share from 20% to 22%. The effective gain in market share is more significant than that, as most of these exports were for Iraq overall as opposed to being concentrated in the KRI. Turkish exports’ 18% recovery in 2017 and total imports’ 13% increase vs flat Iranian exports emphasises the competitiveness of Turkey’s exports whether due to quality or currency competitiveness vs the Iranian Rial.

Finally, the value of Turkish exports actually increased by about 25% in TL terms[vi], as the TL exchange rate against the USD decreased from TL 2.15 by end of 2013 to TL 3.79 by the end of 2017. All of which underlines the importance to Turkey of its exports to Iraq, especially in light of the 40% decline in the TL vs the USD so far in 2018. The significance of these exports might very well increase Iraq’s bargaining power with Turkey over many issues, particularly the water flow of the Tigris and Euphrates. Iraq’s relative bargaining power is further enhanced by the fees -converted to TL- collected for the oil that is shipped through Turkey to its port of Cihan, especially if Iraq resumes the Kirkuk oil exports of 250,000-300,000 barrels per day (bbl/d) that were cut after it reasserted feral authority over these fields in October 2017[vii].

Turkish exports to Iraq 2004 – 2017

 

(Source: https://tradingeconomics.com/turkey/exports/iraq)

Jordan’s exports and re-exports to Iraq suffered a great deal due to the closure of the land routes as a result of the ISIS occupation and subsequent conflict. The chart below shows a decline of 64% from 2013 to 2016 in Jordan’s exports, and probably a similar decline for re-exports. The mild recovery of 8% by 2017 from 2016’s low levels should be seen in the context that the trade route only reopened in October 2017, which argues well for meaningful growth in 2018[viii]. While Jordan’s economy is too small to fully replace Iran’s exports, its fresh foods[ix] would fill some of the gap and its much larger re-exports through Aqaba will make a difference.

Jordan’s exports to Iraq 2003-2016

 

(Source: https://tradingeconomics.com/jordan/exports/iraq)

Kuwait’s exports to Iraq recovered meaningfully in 2017 after a decline in 2013-2016, yet overall volumes are small. Most of these are re-exports through Safwan as Kuwait’s ports complement Basra.

Kuwait’s exports to Iraq 2003-2017

 

(Source: https://tradingeconomics.com/kuwait/exports/iraq)

The biggest potential beneficiaries from the sanctions would be Saudi Arabia and the UAE. Developing their relationship and influence in Iraq through trade and investments is magnified without competition from Iranian goods. Their economies would benefit from both the opportunity to replace Iranian products and from a sizeable recovering market. Even though 2016[x] was a low point for UAE’s total exports to Iraq, exports accounted for 53% of the mix making Iraq the seventh largest export market, while re-exports accounted for 47% of the mix, with Iraq as the fourth largest re-export market.  All of which highlights Iraq’s importance to both the UAE’s economy and its vital re-export business.

UAE’s exports to Iraq 2003-2016

 

(Source: https://tradingeconomics.com/united-arab-emirates/exports/iraq)

Trading with Saudi Arabia ended with the occupation of Kuwait, and while it saw a recovery since 2003, it remained tiny compared to the sizes of the two economies. The re-opening of the Arar border crossing in late 2017, coupled with the re-setting of the relationship, will change this significantly with Saudi expectations that trading values would approach those of Iran in ten years’ time[xi].

Saudi Arabia’s exports to Iraq 2003-2016

 

(Source: https://tradingeconomics.com/saudi-arabia/exports/iraq)

However, there is more to Iraq’s trade with Iran other than its exports of goods, as the relationship includes the export of electricity and gas, as well religious tourism in the form of at least three million religious tourists a year, especially during the annual Arbaeen pilgrimage.

Iran’s recent exports of electricity have been about 1.0 gigawatts[xii] (GW) increasing available domestic supply to 18.91 GW[xiii] by end of 2016. However, the supply has been frequently interrupted since 2015 as Iraq has failed to make the required contractual payments to Iran[xiv]. The supply cut in July 2018 being the latest case – which was a combination of over-due bills of about USD 1bn[xv] and Iran’s increased domestic needs for electricity. The argument over the importance of this supply has been made moot as Iran would not be able to resume exports in the near future, due to its own domestic needs[xvi]. Short-term solutions to replace this lost supply from Kuwait and Saudi Arabia have the potential to become long-term solutions that will further cement the relationship.

For instance, Kuwait supplying fuel for some of the inactive power stations would go some way for Iraq to increase the utilization of its available but unutilized generating capacity due to lack of fuel. This relationship could be developed to one of mutual benefits with Kuwait supplying electricity in return for Iraq supplying gas[xvii], which while mutually beneficial would help the rebuilding of trust. Similarly, discussions with Saudi Arabia for the supply of electricity, possibly under much more advantageous commercial terms[xviii] than those with Iran, would further develop this relationship.

Much more troublesome and very difficult to replace would be the supply of Iranian gas to power stations in Baghdad and Basra – these were based on deals signed in 2013 to supply 9.1 Billion Cubic Meter (BCM) a year to each city. Exports to Baghdad started in June 2017 and totalled 1.2 BCM by November 2017[xix], while exports to Basra were supposed to start after May 2018[xx].  Both sides have been silent on this recently, as media reports have only covered Iraq’s implementation of the sanctions in the form of banking transactions and closing access to Iranian goods. While details could be delayed until the November implementation of the oil sanctions or Iraq would seek waivers. Either way, there are no easy or short-term solutions for the replacement of this vital supply apart from increased focus and spending on capturing flared gas. However, this gas has been only available recently, and in relatively small quantities, while its eventual replacement, i.e. gas recovered from flaring, is substantially cheaper as the Iraqi government pays the Basra Gas Company (BGC) about USD 2.50 per MMBtu vs for Iranian USD 6.6 – 7.2 per MMBtu[xxi] (data as of early 2018).

Religious tourism is an important sector, employing about 160,000 people directly, extending to 447,000 beneficiaries (2014 data[xxii]). While, Iranian pilgrims and visitors are an essential component in religious tourism, yet a significant percentage of pilgrims or visitors are Iraqis. Moreover, the importance to Iraq’s economy from the spending of Iran’s pilgrims is somewhat misunderstood or overstated. For instance, during the Arbaeen, Iraqis provide hospitality through offering accommodation in their homes and providing free food as part of their religious duties towards the pilgrims[xxiii]. As such, the extra consumer spending during the most prominent religious event comes from Iraqis. The spending by regular Iranian religious visitors, throughout the year, will not be so easily replaced- although it is mitigated by the fact that almost all those visitors use Iranian airlines and employ Iranian tour operators.

Finally, the effects, of the loss of USD access for Iran, on Iraq would take a long time to assess. In 2012, the governor of the Central Bank of Iraq[xxiv] suggested that there were increased demands of 40-50% for the USD following the imposition of sanctions on Syria and Iran, which led to an increase in the market price of the USD vs the Iraqi Dinar (IQD) as can be seen from the chart below.

Iraqi Dinar (IQD) exchange rate versus the USD Jan 2011 – August 2018

 

(Source: Central Bank of Iraq, Iraqi currency exchange houses, Asia Frontier Capital)

(Note: The sharp pikes in 2012, 2013 & 2015 were due to CBI policies that restricted the sale of USD, but abandoned after causing a rise in market rates)

The convergence of the market price of the USD and the official exchange rate vs the IQD came to an end in 2011 and diverged in 2012 due to the increased demand for the USD. Apart from the spikes due to policies to limit the official supply of the USD, the normal range was 2-4% premium of the market price over the official rate. This increased up to a 10% premium during the worst of the crisis as oil revenues were substantially below expenditures and exports were less than imports. This divergence came to an end with the recovery in oil prices and the declining cost of war until it stabilized at around 1.5% premium to the official exchange rate.

It’s difficult to make the same argument today about the increased demand, or at least a sharp increase, from the current round of sanctions given that the re-integration of Iran with the world economy following the signing of the JCPOA (The Joint Comprehensive Plan of Action) still suffered from the reluctance[xxv] of most banks to deal with Iran. In particular, Iran’s access to the USD continued to be severely limited. All of which might explain that the signing of the JCPOA had not affected the market price of the USD vs the IQD.

However, it is worth noting that after a stabilization over the last few months, the premium of the market price over the official rate increased in early August from about 1.5% to over 2%. This might be related to the sanctions effect or to the signs of recovery of the local economy from increased consumer spending and the resultant increase in demand for imports. A full recovery in consumer demand for imported products would likely take the premium to a range of 2-4%.

It can be argued, that while Iraq genuinely disapproves of the Iranian sanctions given its own bitter 14 years’ experience with them, yet it stands to benefit from their imposition as they will fast-track a number of positive trends that are already taking place.

Iraq’s new-found ability to self-fund its reconstruction, estimated at about USD 18.8bn by end of 2018[xxvi], will accelerate its economic recovery through a liquidity injection of 14.5% into the non-oil economy once reconstruction projects are underway. In the process making the country extremely attractive for its neighbours’ economies, both as a goods export destination and for re-construction businesses. The opportunity to replace Iranian goods increases the benefit for these exporters. Ultimately, this will cement the USD 30bn pledged for the reconstruction of Iraq at the Kuwait Conference[xxvii] from promises into actual spending that will benefit the economies of the providers as much as Iraq’s economy. The deeper implication is a change in their relationship from that of benefactors into partners which will ensure its sustainability- in the process speeding Iraq’s re-integration in the region and ensure a balanced relationship with its neighbours.

The re-opening of the Iraq-Saudi Arabia border crossing and the Iraq-Jordan border crossings will accelerate the rehabilitation of Anbar (arguably disenfranchised after 2003 and a seat of resentment for the post-2003 political order), and the southern governorates (neglected by both the current and the prior regimes). The resumption of trade-links with their associated economic activities would provide a huge boost to the local economies, which while contributing meaningfully to the healing process, will build upon and magnify the economic revival until it becomes self-sustaining with the boost from reconstruction.

Meanwhile, the relationship with Iran might mature if the Iranians look beyond their frustration at Iraq’s compliance with the sanctions and listen closely the anti-government sentiment within Iran following the December 2017 demonstrations. What is vital here, and something that would increase stability within Iraq, is a complete rethinking the relationship to that of a state to state basis from the current relationship involving sub-state actors. This would subsequently benefit Iran by making another Iraqi security crisis less likely, and ensuring the relationship is based on national sentiment, rather than non state actors.

Disclaimer

Ahmed Tabaqchali’s 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.

[i] The code for Turkish Lira is TYR, but TL is used widely. https://en.wikipedia.org/wiki/Turkish_lira

[ii] The 12 months ending in March 2018 correspond to the Iranian year 1396. Iranian data are provided using this calendar.

 https://financialtribune.com/articles/economy-business-and-markets/81287/iran-third-biggest-trading-partner-of-iraq-with-16-share

[iii] Al Waleed crossing was freed by Iraqi forces in June 2017. https://www.reuters.com/article/us-mideast-crisis-iraq-syria/iraqi-forces-remove-islamic-state-fighters-from-vicinity-of-u-s-base-in-syria-idUSKBN19807Y

[iv] http://documents.worldbank.org/curated/en/672671468196766598/pdf/106132-v2-main-report-P159972-PUBLIC-KRG-Economic-Reform-Roadmap-post-Decision-Review-05-30-16.pdf

[v] https://www.washingtoninstitute.org/policy-analysis/view/turkey-and-the-krg-signs-of-booming-economic-ties-infographic

[vi] Arrived at by diving the value of exports by the year end value of the TL.

[vii] Iraq’s bargaining power is further enhanced if it links this with plans to double Kirkuk’s output over the next few yeaes

 The Kurdistan Regional Government (KRG) exported an average of 550,000 bbl/d in 2017 until October 2017. After which they ranged between about 240,000-370,000 bb/d for an average of 311,000.

http://auis.edu.krd/iris/sites/default/files/Statehood in KRI through an Economic Lens_ FINAL.pdf pages 6 & 7, page 7 footnote 15.

[viii] http://www.jordantimes.com/news/local/industrial-exports-iraq-resume-after-border-reopening

[ix] Although most of Jordan’s exports are currently value-add products. In 2016, Pharmaceutical Products accounted for 16% of total exports, Electrical & Electronic Equipment for 13%; Fertilizers for 12%; plastics for 11%. While Vegetable, Fruits & Nut food preparation accounted for only 2.3%, and Edible Vegetables, certain roots and Tubers accounted for 2.2% for a total under 5%.

[x] http://iraqieconomists.net/en/2017/09/19/uae-iraq-trade-touches-7-billion-2016/

[xi] https://www.thenational.ae/world/mena/saudi-iraqi-trade-to-reach-23-billion-saudi-riyals-within-10-years-1.706487

[xii] https://en.mehrnews.com/news/122562/Iran-to-resume-electricity-exports-to-Iraq-within-weeks

[xiii] Table 3, page 79 ““A New Hope: Iraq Oil’s Way Forward” http://www.bayancenter.org/en/2018/02/1435/

   Figures from the Ministry of Electricity show that available capacity, was 16.0 GW by end of July 2018, which does not include the lost Iranian supply. https://moelc.gov.iq/index.php?name=News&file=article&sid=4212

[xiv] This article explains the nature of the relationship and the history of the under-payments https://www.washingtoninstitute.org/policy-analysis/view/the-irgc-may-try-to-divert-iraqs-electricity-payments

[xv] https://theiranproject.com/blog/2018/07/08/iran-cuts-electricity-supplies-to-iraq-over-unpaid-bills/

[xvi] https://theiranproject.com/blog/2018/07/17/govt-spox-iran-not-to-resume-electricity-supplies-to-iraq-in-near-future/

[xvii] https://www.middleeastmonitor.com/20170202-kuwait-considers-export-of-electricity-to-iraq/

[xviii] https://www.bloomberg.com/news/articles/2018-07-29/iraq-says-saudis-to-sell-it-power-at-a-fraction-of-iran-s-price

[xix] Page 82 “A New Hope: Iraq Oil’s Way Forward” http://www.bayancenter.org/en/2018/02/1435/

[xx] http://www.irna.ir/en/News/82906994

[xxi] Page 82 “A New Hope: Iraq Oil’s Way Forward” http://www.bayancenter.org/en/2018/02/1435/

[xxii] http://documents.worldbank.org/curated/en/255111529495871846/pdf/Jobs-in-Iraq-a-primer-on-job-creation-in-the-short-term.pdf

[xxiii] http://www.bbc.com/travel/gallery/20171220-the-iraq-city-that-opens-its-doors

[xxiv] https://www.alarabiya.net/articles/2012/04/12/207233.html

[xxv] https://www.reuters.com/article/us-iran-banks-kerry-idUSKCN0Y30OJ

[xxvi] A recent report by the author covers this in further detail.http://www.iraq-businessnews.com/2018/06/15/forget-the-donations-stupid-new-dynamics-in-funding-reconstruction/

[xxvii] https://uk.reuters.com/article/mideast-crisis-iraq-reconstruction/factbox-pledges-made-for-iraqs-reconstruction-in-kuwait-idUKL8N1Q55RY