Iraqi Dinar Recaps and Guru Updates: Guess Who Signed a?$526 Million Drilling Contract With Baghdad…
Look: Major Developments and News in Iraq
In recent weeks, the global community has pledged substantial financial and military support for Iraq. These efforts should be invaluable in improving economic and social stability throughout the region. Here are some organizations and allies that are extending more aid to Iraq:
- ?The World Bank is among the organizations that have promised aid. According to Finance Minister Hoshiyar Zebari, the WB agreed to loan $1.7 billion to help stimulate the economy. Zebari ?said that the aid will be used to fund development projects, but hasn?t specified which ones yet. This figure is on top of a $833 million fund from the International Monetary Fund.
- The United States is also pledging support for Iraq. Congress failed to pass a new amendment that would have granted the government the ability to directly arm Kurdish forces fighting against ISIS. However, the Obama Administration is still providing sufficient arms and supplies to Baghdad, which has helped Kurdistan in its campaign against the militants. According to a report from Dunia Frontier Consultants, President Obama and members of Congress are pleased with the progress Kurdistan has made in the ongoing dispute, which means they are likely to maintain military support in the months to come.
- Other countries have recently expanded on their promises to help Iraq fight against ISIS as well. Last month, 22 Countries convened in Paris discuss their strategy for the war against ISIS. Iraqi News reports that countries participating in the discussions included Iraq, the United States, Egypt, Saudi Arabia and Turkey. The minutes of the meeting haven?t been released, but a French diplomat said the discussions were encouraging.?This support will be invaluable to Iraq in the months to come.
Now: Iraq Improving Relations in the Middle East
While Iraq has received considerable, ongoing support from allies, it is also making strides in building relations with other countries that it had alienated during Saddam Hussein?s reign. A couple of weeks ago, Kuwait pledged $300 million in humanitarian aid to Iraq, which reflects the fact that the relationship between the two countries has dramatically improved. Over the last few days, Iraq has held discussions with Iran and Syria to help thwart security threats from ISIS and other shared foes.
Measures to Fight Corruption
Iraq is also taking steps to rid itself of the alleged corruption and waste caused by previous administrations. Government officials announced that $145 million is unaccounted for during former Prime Minister al-Maliki?s first term in office. Maliki may face waste charges if additional evidence surfaces. The investigation alleges that the wasteful spending was partially responsible for the fall of Mosul to ISIS, so Maliki may be required to testify.
Key Trends in the Oil and Energy Industries Recap
The oil and energy industries are still essential to the Iraqi economy. Growth in these sectors has accelerated in recent weeks, which will be a boon to the country.
It gets better: Oil Exports In Iraq Reach 35-Year High
The Iraqi oil industry grew rapidly in 2014 and recent data from the Ministry of Oil indicates that the trend is expected to continue through 2015. The most recent report showed that oil revenues exceeded $5 billion in May, due to both increased production and rising global oil prices. Oil producers sold nearly 98 million barrels in May, which is the highest monthly volume in 35 years. Assem Jihad a spokesman for the Ministry, said that the oil industry in many regions across the country.
?The amount of exports from southern ports in Basra was eighty-three million five hundred thousand barrels (83.5) and the revenues amounted to four billion and six hundred and twenty-nine million dollars (4,629), while the total amount of exported oil from the Kirkuk oil fields reached fourteen million barrels and the revenues amounted to eight hundred and eighteen million dollars (818),? Jihad said in a statement to Iraqi News.
Factors Affecting Growth
The Ministry of Oil also said that oil exports could have been higher, but were hurt by inclement weather in the Basra region. The Ministry said that it was taking steps to resolve the problems, which suggests that the situation will improve as the weather problems resolve.
Developments in Kurdistan are especially encouraging for the country. Many officials were concerned that Kurdistan would suffer an economic fallout after the central government imposed budget cuts on the Kurdistan Regional Government (KRG), but the region was able to make up for the lost revenues by increasing oil production. Erbil officials announced that Kurdish oil producers exported over half a million barrels of oil to Turkey each day during the month of June, which helped them pay down some of the debts they accumulated from prior months.
While the growth of the oil industry is encouraging, it also fuels concerns that oil producers could be targeted by ISIS militants. The government has been forced to consider new security solutions to address the problem. Prime Minister Haider al-Abadi announced that the country has developed a new strategical framework to protect the nation?s oil reserves. The details of the new policies haven?t been fully released, but government officials and oil industry members are confident that they will minimize the threats from ISIS.
The Iraqi government has also developed a new system to transport larger quantities of oil more efficiently. The system involves the use of three oil storage tanks with two vertical pumps, which will transport oil through ports in Basra. This is the first such system in place in Iraq and is expected to significantly increase exports in the future.
More Foreign Oil Producers Procure Contracts With Central Government
A few new foreign oil producers have also established bases in Iraq, which will fuel oil production growth. Zhongman Petroleum is one of the most recent companies to sign a contract with the Iraqi government. The Iraq cabinet confirmed the finalization of the $526 million contract early last month. The Chinese company will be responsible for drilling nearly 70 oil wells in the West Qurna Two oilfield for the next 28 months.
The new contract with Zhongman could considerably help boost oil production in the region. The Ministry of Oil said that the West Qurna Two oilfield has the capacity to produce up to 400,000 bpd, but is currently only achieving about 87% of its potential output. Zhongman has the equipment needed to maximize production, which will boost oil revenues after the project commences.
Higher Oil Prices Will Lift Industry
While the Iraqi oil industry has surpassed historical oil output, production still lagged previous forecasts. Many experts speculate that this means that oil prices will start to rise, since the supply was larger than the global market originally anticipated this summer. Dunia experts believe that this will help stabilize the global oil market, which will eventually benefit the Iraqi economy as well.
One of the problems that was caused by the decline in oil prices was that the Iraqi government was forced to renegotiate deals with foreign oil producers. The government was previously paying them a share of revenues for the oil they produced, but these firms were disillusioned since declining prices meant they would receive lower revenues. The government has since been paying them fixed fees, but plans to renegotiate after oil prices begin to rise again.
Local Businesses and Foreign Investment
Iraq is raising capital to expand public programs and improve stability throughout the country. The central government had faced challenges raising capital from foreign investors in previous years due to security and fiscal concerns. However, since most of those concerns are being adequately addressed, international investors have expressed a stronger willingness to pledge money to the country.
First Public Debt Issue in Nearly a Decade
Finance Minister Hoshiyar ZebarIraq announced that Iraq plans to issue $5 billion worth of bonds at the end of July, which will be the first time that the country has sold debt in nine years. ZebarIraq said that the sale will be organized by JP Morgan, Citibank and Deutsche Bank. The debt will be used to cover a deficit that the country generated after crude oil prices fell months ago, which Iraq expects to repay later this year as oil revenues continue to rise.
Increase in Foreign Direct Investment
While increased financial support is beneficial for the Iraqi government, the country is also facing greater long-term growth driven by increased foreign direct investment. Iraq has attracted a number of oil companies since the downfall of the Bathe Regime, but has recently started to gain the attention of other industries.
The Iraqi government announced that the number of businesses signing deals with Iraq increased significantly in the last couple of months. The government was signing deals with ten companies a month until May, when fourteen companies signed contracts to operate in Iraq. In May, six of the companies that agreed to sign a contract with the Iraqi government were based in the United States, while another four were located in the United Kingdom. Companies from China, Jordan, Peru, and South Korea all signed contracts as well.
SOSi International is one of the organizations that has recently opted to establish a presence in Iraq. The Virginia company was awarded a $40 million contract to supply base life support to the Besmaya Compound. The company is already providing similar services at Camp Taji near Baghdad.
LS Industrial is another foreign company that has decided to establish a presence in Iraq. The South Korean electronics company will supply electrical equipment for Iraqi substations for $150 million. A LS Industrial spokesperson said that this is the largest deal the company has ever signed.
Short-term Challenges Affecting Commerce and Foreign Investment
However, there are still some lingering problems that are hindering commercial development in Iraq. One of the biggest challenges is a persistent dispute between the Iraqi and Kurdish governments. A few years ago, Erbil officials maintain that many of its oil reserves were not subject to taxation by the central government, which sparked a feud between the two jurisdictions. They have since reached some concessions, but the crisis between the two regions remains.
The dispute between the KRG and Baghdad has created an environment of uncertainty, which has deterred some foreign companies from establishing a presence in Iraq or maintaining business with Iraqi companies. British Petroleum and Cepsa were both conducting business with Iraqi companies from their bases in Turkey, but opted to cancel shipments due to the strife between Kurdistan and Baghdad. They may resume operations after the dispute eases.
Factors Affecting the Dinar Value & Exchange Rate
Demand for the Dinar remains stable, but the central bank plans to take new steps to boost transactions in the coming months. The most recent currency exchanges was conducted on June 25, in which 28 banks and 2 remittance companies participated. According to the Iraqi Stock Exchange, $313,613,012 in Dinar transactions were placed.
CBI Takes Steps to Reduce Trading Volatility
According to the recent report from Dunia Frontier Consultants, the Dinar is currently trading at the same rate as it was a year ago. However, the currency value has also experienced volatility in recent months, so the Central Bank of Iraq (CBI) is taking new measures to improve trading stability.
One of the steps the CBI has taken is cancelling the 8% tax and custom fee that it collects from banks. Prime Minister al-Abadi approved the request. The CBI said that ending this tax will help stabilize the banking industry and streamline transactions between regional and national banks. They are confident that the value of the Dinar will increase as the banks are able to operate more efficiently.
The CBI also said that it will begin to remove many of the zeros on the Iraqi currency. It plans to make the change in 2017, which is expected to make the currency more competitive in the global economy, in turn causing the value to rise.
Long-term Outlook for Dinar is Encouraging
While the value of the Dinar has fluctuated in recent months, the CBI has assured the global financial community that the volatility will be short-lived. The reserves at the central bank are three times as high as the money in circulation, which affords the CBI considerable flexibility for setting monetary policy to prevent devaluation.
A number of factors could affect the value of the Dinar in the coming months. One concern that has been raised is a high unemployment rate. According to Iraq?s May Displacement Tracking Matrix, there are slightly over 2.8 million displaced citizens in the country. The majority of these citizens were displaced due to the Ramadi conflict, so the number will probably decline in the near future as the Iraqi economy continues to improve. However, unemployment is one of the factors that is temporarily weighing on the Dinar.