By Fazel Hawramy for Al Monitor. Any opinions expressed here are those of the author and do not necessarily reflect the views of Iraq Business News. 

Will Riyadh-Tehran rivalry kill Iraqi Kurdistan’s investment drive?

Iraqi Kurdistan, facing an acute financial crisis, has a newfound opportunity to attract desperately needed foreign investment from Saudi Arabia, but regional tensions between Tehran and Riyadh could hamper its efforts.

A large Saudi trade delegation led by Sami Bin Abdullah al-Obeidi, chairperson of the Council of Saudi Chambers, and accompanied by the Saudi ambassador to Iraq and the consul general to Erbil, visited the Iraqi Kurdistan Region July 23-25, meeting with business leaders and government officials, including Prime Minister Nechirvan Barzani, to explore economic opportunities in the energy, agricultural, industry and tourism sectors.

Although no agreements were signed, the parties agreed to work toward expanding economic relations, as Saudi Arabia plans to establish a direct trade link from its Arar border crossing into Anbar province and on to the Kurdistan region.

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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.

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.

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By John Lee.

The spokesman for the Ministry of Electricity, Dr. Musab Sari al-Mudaris [Mussab Serri al-Mudaris] (pictured) has denied reports that he had told Bloomberg about an agreement to buy electricity from Saudi Arabia.

He said the statement from the news agency is incorrect.

Bloomberg had cited Mudaris as saying that Saudi Arabia agreed to build a 3,000-megawatt solar power plant in Saudi Arabia and sell the electricity to Iraq at $21 per megawatt-hour, a quarter of what it paid Iran for the imports.

Iran recently stopped supplying electricity to Iraq due “the accumulation of debts owed by Baghdad“.

(Source: Ministry of Electricity, Bloomberg)

Iraqi Electricity Minister Qassem Al-Fahdawi (pictured) said yesterday that his country has failed to convince Iran to resume supplying Iraq with electricity.

Last Friday, Al-Fahdawi along with an Iraqi delegation arrived in Tehran where they held talks with Iranian officials to resume supplying Iraq with 1,000 megawatts of electricity, which Tehran cut off about two weeks ago due to the accumulation of debts owed by Baghdad.

Al-Fahdawi explained in a statement received by Anadolu News Agency that his ministry “has put [forward] an alternative plan to importing electricity from Iran”.

Iraq has been importing electricity from Iran for many years after their power infrastructure was destroyed by decades of war and blockade.

According to figures released by the Iraqi Ministry of Electricity in August, last year the country produces 15,700 megawatts of electricity, however it needs more than 23,000 megawatts of electricity to meet its population needs.

The power outage caused by the Iranian move contributed to fueling violent protests in the southern Iraq provinces which led to at least five people being killed and 190 wounded after security forces fired on protesters.

(Source: Middle East Monitor)

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 Ibrahim Saleh.

Multi-Billion Dollar Budget Needed To Keep Iraq’s Water Flowing

In Baghdad, locals have been fretting about dramatic falls in the level of the Tigris river. The government has a plan. Only problem is, that plan requires billions in funding that Iraq does not have.

The passengers in the small bus all peer out anxiously as the vehicle crosses the Sanak bridge – the name used by locals for the Rashid bridge which spans the Tigris river in the middle of Baghdad. They’re not worried about the bridge though, they’re worried about the water levels.

“It’s actually very low,” one passenger says to another.

“We should expect that,” his travelling companion replies, “they are trying to drain the water – and the life – out of Iraq.”

Salah al-Jibouri is the 47-year old driver of the minibus. The passengers call him Uncle Salah. And he’s been driving this route for years. At the beginning of every Iraqi summer, he always hears these same conversations about the amount of water in the Tigris river. But this time, he says resignedly, it’s more serious and people are really worried.

Possibly with good reason. At the time the bus is crossing the bridge, it had only been 24 hours since the Turkish government announced that they had started filling their huge Ilisu Dam to the north. Critics have been talking about the damage that stopping the flow of water in Turkey will do to Iraq for years – but now the problem is clear for all to see, as the Tigris river levels have fallen away dramatically.

Locals could talk about little else. Some Iraqis posted pictures of residents who had been able to walk across the river, which usually requires a boat or a bridge to get over. They were also upset with their own government, which seemed to be confused as to what exactly was going on.

Turkish authorities quickly moved to calm the situation with the Turkish ambassador to Iraq saying that it would take nearly a  year to fill the Ilisu dam’s reservoir and the Turkish president Tayyip Erdogan announcing that the filling of the dam had been postponed.

The Iraqi minister for water resources, Hassan al-Janabi, said that the two countries had agreed upon a way for Turkey to fill the dam more slowly, and without stopping as much water flowing into Iraq.

But the problem is far from resolved. Baghdad locals used to worry about flooding in the city during the wetter months. But now, floods are the last thing they need fear. Instead it is the dams being built by neighbouring countries – including Turkey, Iran and Syria – as well as climate change, that are reducing the water flow into their city.

Over two-thirds of Iraq’s water comes from tributaries it shares with neighbouring countries.

“After these dams were built, Iraq’s share of water decreased by more than 45 percent,” says Zafer Abdullah, a consultant for Iraq’s ministry of water resources.

Iraq has agreements with its neighbours about water flow and how much water the different nations need to share. But some of the treaties are not being adhered to, with, for example, the Iranian government reporting that it cannot stick to a previous deal because climate change has decreased the amount of water to be shared.

The solution would not be to build more dams, the Iraqi ministry of water resources, has stated. Iraq’s own dams are underutilized and would store billions more cubic litres, if they could.

The Iraqi authorities say they have a strategy to see them through until 2035, that would provide water for things like drinking and agriculture. It takes into account the decreased amount of water due to climate change as well as the potential for neighbouring countries to keep blocking or diverting rivers.

However, as al-Janabi says, for the plan to work, it requires 24 “urgent and essential” points to be resolved, at the cost of up to US$3 billion. And that is extra funding the Iraqi national budget cannot afford right now.

(Picture credit: Mohammad Huzam)

By John Lee.

Nationalist cleric Moqtada al-Sadr and Hadi al-Amiri have reportedly announced an alliance between their political blocs.

The groups who won first and second places respectively in last month’s parliamentary election.

While Sadr’s Sairoon Alliance is opposed to Iranian involvement in Iraq, Amiri’s Fatah (Conquest) Coalition is head of an Iranian-backed militia.

At a joint press conference in Najaf, Sadr said “our meeting was a very positive one, we met to end the suffering of this nation and of the people. Our new alliance is a nationalist one.

(Sources: Reuters, Al Jazeera, Moqtada al-Sadr website)

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 Abbas Sarhan.

The Iranian banking system was seen as an attractive alternative to Iraq’s shaky financial institutions. But a recent, drastic devaluation in the Iranian rial means Iraqi money is stuck over the border.

Depositing money in Iranian banks has been popular in Iraq since around 2012, and even more so since 2014, and the security crisis caused by the extremist group known as the Islamic State.

In the southern city of Karbala, it was a popular move for people who had sold property, especially after the decline of prices in the Iraqi real estate market since June 2014 and the beginning of the security crisis.

But in fact, small and mid-sized Iraqi investors have been putting money into Iranian banks since 2012, when the Iranian authorities significantly increased the interest rate on savings in a bid to get more currency flowing into their sanctioned nation.

Iraqi investors were encouraged to deposit cash in Iran. Iraqis could change their money into Iranian rials, then deposit them with bank officers based in Karbala or Najaf, without ever having to leave home.

Tens of thousands of Iraqis took up the offer, says Mohammed Abbas, one of the locals who also did so: He put US$500,000 in Iranian banks.

“It was too tempting for anyone with a small or medium sized deposit,” he explains. “Iraqis were afraid to invest their money in Iraq and there are really not many other opportunities for investment.” Abbas says that in the first three years he made good money off his deposits and he used the rials on his frequent trips to Iran.

However the situation has since deteriorated badly. The Iranian rial has recently lost a lot of value and even those Iraqis who had done well with the interest rates on their money, saw that extra cash wiped out. Now, Abbas says, Iraqi money is trapped in Iran. Depositors cannot withdraw their deposits for fear of wiping out half the value so they leave it there in the hope that the Iranian authorities may be able to revalue their own currency.

However the Iranian authorities appear to only have been able to take limited steps. In April this year, Iranians arrested as many as 90 foreign exchange traders, accusing them of raising the price of foreign currencies against the rial, and suspended activities in ten foreign exchange bureaus. They also tried to set the exchange rate more favourably.

However these measures have not worked and thousands of Iraqis who deposited savings over the border remain frustrated. Anybody who does want to withdraw their cash needs to change the rial for dollars first. Iraqis must change their money on the black market.

Iranian banks only exchange dollars in specific situations and then only to Iranians. Even though the Iranian authorities have tried to set the exchange rate against the US dollar there, the black market exchange rate puts the dollar at significantly higher rates. Which still leaves Iraqi depositors in a bad way.

Iraqi economist Abdul-Hussein al-Rumi says there’s not much anyone can really do. That is the risk that Iraqi investors were taking and Iran’s economy and currency is unlikely to be able to withstand the new round of US sanctions.

Instead of taking their money out of Iran, al-Rumi suggests withdrawing the deposits, buying Iranian goods over the border and then selling them on the Iraqi market to try and reduce their losses and to get out of the Iranian banking system.

By John Lee.

Turkey has reportedly postponed the filling of the Ilisu Dam on the Tigris river until July, as fears of major water shortages in Iraq increase.

According to a report from The National, water levels of the Tigris have reduced significantly since last week, sparking renewed panic among Iraqis.

The Turkish Ambassador to Iraq, Fatih Yildiz, told reporters that an agreement was signed last month between the two countries to regulate the flow of water.

He added that dams built in neighbouring Iran on its tributaries of the Tigris have contributed to low water levels.

More here.

(Source: The National)

By John Lee.

Iraqi Oil Minister Jabar Ali al-Luaibi [Allibi, Luiebi] (pictured) has contradicted a recent report originating from Iran’s oil ministry news agency Shana, claiming that the Iran-Iraq oil swap had started.

Reuters quotes the minister as saying that implementation of the agreement has been delayed due to “logistical issues“.

(Source: Reuters)