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Iraq seeks Sanctions Waiver on Iran Energy Trade

Iraq is negotiating with the U.S. for exemptions from the impending snap-back of sanctions against Iran, arguing that it could not cut consumption of Iranian electricity and natural gas immediately without suffering serious economic harm and social instability.

An Iraqi delegation was in Washington last week seeking a waiver for its cross-border trade, meeting with senior officials in the State Department, Treasury Department, and National Security Council, according to multiple officials familiar with the talks.

More details here from Iraq Oil Report (subscription required)

(Source: Iraq Oil Report)

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How Iraq Should Respond to the Strait of Hormuz Crisis

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.

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An Integrated Approach for Iraq/Iran Border Fields

By Ahmed Mousa Jiyad.

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

An Integrated Approach for Investment in Joint Development-Unitization for Iraq/Iran Border Petroleum Fields & Exploration Blocks

This article provides brief note in panel discussion and abstract of a keynote PowerPoint presentation prepared for and presented before the 12th International Energy Conference-IEC: Innovative Systems in Energy-Water-Environment Nexus, Tehran, Iran, 19-20 June 2018.

IEC was a cooperation effort between the Iranian National Energy Committee, the International Energy Charter (Treaty) Secretariat, Brussels-ECT and World Energy Council-UK.

My participation was proposed by International Energy Charter Treaty (Secretariat)- ECT, Brussels and I was formally invited, as one of the Key Speakers, by the Iranian National Energy Committee. I am very thankful to both entities for funding my participation.

The aim of the conference was to provide the necessary grounds for specialized and outstanding national and international deliberations, accomplishments and contemporary research activities in energy sector. It comprised, over two days, panels discussions, keynote speeches, scientific research papers, exhibition of innovations and company profiles among others.

I had two contributions in this important gathering: as member in a panel discussion and as a keynote speaker. They are briefly outlined below.

First: The International Panel on Energy Investment and the Environment/ Climate Change

The panel was convened by the International Energy Charter Treaty (Secretariat)-ECT, Brussels and moderated by Dr. Marat Terterov- Principal Coordinator of the ECT.

Panelists include Dr. Urban Rusnak- ECT Secretary General, and international energy experts from Iran, Turkey, Germany, Pakistan and me (from Norway).

The main theme addressed by the panelists was energy investment and the environment, particularly climate change.

Addressing the main theme I began by highlighting three important caveats:

First, climate change is not a new issue; it has been emphasized by the Club of Rome’ monumental book, i.e., Limit to Growth of mid-seventies of last century, and then progressed through many international and regional conferences, protocols, agreements, guidelines, specialized entities among others.

Second, there are at least three interrelated and mutually enforcing levels of concerns or perspectives: international, regional and national.

Third, there is cause-effect-action dynamics that has to be addressed, especially investment that causes environmental degradation and thus requires further investment and technologies for remedial actions.

Then I focused on the national perspective by talking about Iraq and by linking the main theme of the conference Energy-Water-Environment Nexus to the actual development in Iraq’s petroleum sector development and related policy success and failures.

Moving from the national to the regional perspectives, I highlighted the needs for and thus proposed a regional cooperation framework focusing on Energy-Water-Trade-Development comprising countries of Iran, Iraq, Turkey and Syria.

Second: An Integrated Approach for Investment in Joint Development-Unitization of Iraq/Iran Border Petroleum Fields & Exploration Blocks

As one of the keynote speakers my presentation focused on the importance, necessity and working modalities for border fields’ development.

Empirical evidence and analytical premises suggest that sovereign border hydrocarbons fields or exploration blocks could be developed either through “competitive” or “collaborative” strategies; the first follows “rule of capture” or “use it before losing it”, while the second adopts “feasibility & optimization”;  the first is harmful to the field, its structure and reservoir(s) while the second adheres to efficiency considerations, prudent natural resource management and international best practices; the first is premised on “sovereign exclusivity” while the second is formulated on “Bi/trilateral inclusivity”; the first is “conflict-prone”  while the second serves “mutuality of interests”; the first is “short-term focused” while the second has “phasic orientation” and finally, from investment vs. net revenue perspectives, the first is “own-risk” while the second is “burden and benefit-sharing”.

What should be highlighted is that collaborative development of a border field could be done through two distinct modalities with different investment and revenue structures: unitization (mostly trilaterally structured) and joint venture (mostly bilaterally structured).

Institutional and managerial setups are, by necessity, a top-down multi-layered structures; from “top-sovereign” through “macro” to “sectoral” to “sub-sectoral” to lowest operational  “micro-project” levels.  That indicates border fields development is, apparently, an issue characterizes with complexity and inter-connectivity and, consequently requires, from sovereign parties, holistic approach with clear Vision, competent integrated Mission and specific practical Actions.  Hence, joint development arrangements and operational modalities of border fields or exploration blocks are lengthy, difficult, legally complex and politically sensitive. Thus, as prerequisite for protecting the national interests of the sovereign parties it is vital to formulate specific strategy and adopt well thought integrated approach or roadmap for jointly developing the fields across Iraq-Iran borders.

For this purpose the presentation proposes Strategy Outcomes Matrix-SOM and related TELG Approach; while SOM elaborates on the mentioned above thoughts, TELG Approach basically integrates four fundamental broad spheres of professional knowledge-base and analysis and applicable to the collaborative mode of border fields development in both modalities- unitization and joint venture:

Technical (including technological, engineering, geological and related petroleum specializations, which should provide all related structural, volumetric and qualitative parameters, data and analysis including thorough Situation Analysis and Base-Line Survey );

Economic (including assessing investment options, sensitivity analysis, economic and financial feasibility assessment based on Equity shares, Capex, Opex, existing Assets valuation and provides thorough cash-flow analysis among others);

Legal (including governing frameworks, contract type or contracting modalities and related approvals; Pre-unitization Agreement/ Unitization Operation Agreement);

Geo/political (including bilateral and international instruments, norms and standards pertinent  to the subject matter. For Provincial/ Regional blocks it covers domestic political issues relating to resource development and management).

The main components of these four pillars of TELG Approach have to be thoroughly and comprehensively analyzed and their significance and implications highlighted.

For this purpose the presentation suggests TELG-SCOR analysis (SCOR stands for Strength, Challenges, Opportunities and Risks for each TELG components) that both countries might need to explore.

TELG Approach, by its very nature, requires multi-layered integrated-team working of relevant and related specializations and expertise comprising:

Authorizing and Coordinating Committee-ACC (high-level decision making on the Ministry’s level with formal reporting obligations to the Cabinet and the Parliament);

Team Leader-TL (with track record of petroleum professional competence and international negotiation skills);

Supportive Working Group(s)-SWGs (comprising members with distinct knowledge in their own field of knowledge and specialization) and representatives from the related field or exploration block such as the State Partner and the contracted Consortium/IOC.

The main functions, working procedures, modus-operandi and role of each group in the team working need careful identification and adherence.

Also, the application of TELG approach takes into consideration the status of the related border field/block; accordingly, there could be many scenarios depending on the assessment of the joint border field/block.  This calls for “Special” version of Unitization Agreement.

Both countries, Iraq and Iran, have in recent years invigorated their efforts for boarder fields’ development and, moreover, assigned “strategic” importance and grant priority to these fields. At the same time both countries endeavored to pursue joint modalities in such development.

The presentation provides a list of worldwide unitization agreements and hypothetical illustrative example on a unitization case study.

Hence, this contribution is timely, relevant and helpful. The presentation was through PowerPoint slides, uses formal and official sources for data and information.

My PowerPoint slides are available upon direct request.

The Conference website is http://irannec.com/English/default.aspx

Key Speakers and titles of their presentations are listed through http://irannec.com/English/83-Key-Speakers

Norway

25 June 2018

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)online.no, Skype ID: Ahmed Mousa Jiyad). Read more of Mr Jiyad’s biography here.

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Confusion over Iran-Iraq Oil Swap

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)

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Iran Starts Oil Swap with Iraq’s Kirkuk

Iran started swapping oil with Iraq’s Kirkuk on Sunday, after the two neighbours sorted out the logistic issues that were preventing the swap’s startup.

According to the CIF-based swap deal, Iran receives 30,000 to 60,000 bpd of oil from the Kirkuk oil fields in northern Iraq to an Iranian refinery across the border via tanker trucks, in exchange for oil for southern Iraq.

On Sunday, the tankers offloaded their cargoes at storage tanks in Iran’s Darreh Shahr, the western province of Ilam, which were installed in the city by the National Iranian Oil Products Distribution Company (NIOPDC) for the purposes of the swap operation.

The oil is to be fed to Iranian refineries. The swap agreement is subject to renegotiation.

Based on cost, insurance and freight (CIF) sale terms, seller must pay the costs and freight includes insurance to bring the goods to the port of destination.

(Source: Shana)

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Iran Starts Oil Swap with Iraq’s Kirkuk

Iran started swapping oil with Iraq’s Kirkuk on Sunday, after the two neighbours sorted out the logistic issues that were preventing the swap’s startup.

According to the CIF-based swap deal, Iran receives 30,000 to 60,000 bpd of oil from the Kirkuk oil fields in northern Iraq to an Iranian refinery across the border via tanker trucks, in exchange for oil for southern Iraq.

On Sunday, the tankers offloaded their cargoes at storage tanks in Iran’s Darreh Shahr, the western province of Ilam, which were installed in the city by the National Iranian Oil Products Distribution Company (NIOPDC) for the purposes of the swap operation.

The oil is to be fed to Iranian refineries. The swap agreement is subject to renegotiation.

Based on cost, insurance and freight (CIF) sale terms, seller must pay the costs and freight includes insurance to bring the goods to the port of destination.

(Source: Shana)

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Iran Oil Ministry: Iraq to Blame for Delay in Oil Swap

Iran’s Oil Ministry linked a 4-month delay in the implementation of an oil swap deal with Iraq to the Arab country’s unpreparedness and technical problems.

In a letter to the Tasnim News Agency in response to a recent report on the lengthy delay in implementation of the oil swap deal with Iraq, Iran’s Oil Ministry said the problem lies in the Arab country’s failure to remove the obstacles.

“The slight delay in implementing the major deal on swapping the crude oil produced in northern Iraq is mainly because of unprepared infrastructures and some logistical deficiencies on Iraq’s part,” the letter read.

It said the oil swap operation will begin soon, dismissing reports on “oil diplomacy negligence” or secret issues being behind the delay.

In February 2017, Iraq’s Oil Ministry said it had signed a deal with Iran to carry out studies on the construction of a pipeline to export crude oil from the northern Iraqi fields of Kirkuk via Iran.

In December, the two neighbors finalized the agreement, according to which Iran would provide Iraq’s southern ports with oil of the same characteristics and in the same quantities as those it would receive from Kirkuk.

Between 30,000 and 60,000 bpd of Kirkuk crude will be delivered by tanker trucks to the border area of Kermanshah, where Iran has a refinery.

The two countries are planning to build a pipeline to carry the oil from Kirkuk, so as to avoid trucking the crude.

(Source: Tasnim, under Creative Commons licence)

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Oil Ministry Conf on Development of 11 Exploration Zones

By John Lee.

Iraq’s Ministry of Oil will hold a conference on Thursday 29th March to announce for a new licensing round to develop and rehabilitate 11 exploration zones on the borders of Iran and Kuwait, including one offshore zone on the Gulf.

The conference will be attended by 13 international companies which have purchased the data portfolios, in addition to two companies which intended to buy data portfolios.

These 15 companies will compete for the rights to develop and rehabilitate these exploration zones.

Assim Jihad, spokesman of the Ministry of Oil, said also that the form of the contract will be “service contract with a few modifications”.

(Source: Ministry of Oil)

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Iran says IS Resurgence could Hamper Iraq Oil Deal

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.

The Islamic State (IS) appears to be staging a comeback in parts of Iraq, which could endanger the country’s oil deal with Iran.

Hamid Hosseini, the Iranian secretary-general of the Iran-Iraq Chamber of Commerce, warned in late February that the countries’ plan can’t be implemented fully because of security concerns. The countries signed a bilateral agreement in July 2017 to install a pipeline to transport Kirkuk’s crude oil to Iran to be refined. In the meantime, the oil is being transported by trucks, which are vulnerable to attacks.

The Kurdish military, or peshmerga forces, took control of Kirkuk in 2014 after Iraqi forces fled as IS swept through the area. But in October, Iraqi forces reclaimed the oil-rich territory from the Kurds.

IS has been blamed for numerous recent attacks in the area. On Feb. 19, IS fighters ambushed a convoy of the Baghdad government’s Shiite Popular Mobilization Units (PMU) in the Hawija district, southwest of Kirkuk, killing 27. On Feb. 27, gunmen had targeted the Turkmen Front with a rocket shell. Since Hosseini’s warning, security has deteriorated both in Kirkuk and Hawija. Local authorities have called for military enforcement.

Masrour Barzani, the head of Kurdistan security, stressed that the “IS offensive in Kirkuk province is not coming to an end anytime soon.”

These developments cast clouds of uncertainty over any investment attempts in Kirkuk city, particularly in the oil sector. Yet Rakan al Jibouri, Kirkuk’s Baghdad-appointed interim governor, doesn’t agree, though he acknowledges “there are unsecured areas.”

“This won’t obstruct the development of oil facilities and exportation projects, as the agreement signed by the [Iraqi] Ministry of Oil on Feb. 8 to construct a new refinery clearly demonstrates otherwise,” Jibouri told Al-Monitor.

Ministry spokesman Asim Jihad also told Al-Monitor the present security situation won’t affect Kirkuk oil investments. “The Iranian official’s [Hosseini’s] statement reflects his state’s point of view. The Iraqi side is committed to upholding the agreement as long as Iran is not backing down.”

Jihad said the contract provides for exporting 30,000-60,000 barrels of oil a day via trucks from Kirkuk fields to the border zone near Kermanshah, Iran.

“Work is still underway to install an oil pipeline to Iran with a capacity of over 250,000 barrels [per day],” Jihad added. “Moving forward, we are going to stop using trucks, which are more exposed, require more security measures and cost more.”

Moreover, one of the reasons behind the agreement was “Iran’s need of large amounts of Iraqi oil for refinement purposes, as well as for complementary industries in Iranian areas across [the border].” Jihad said Iraq will also benefit because it will be able to export oil abroad at lower costs.

All that said, however, Jihad noted the Oil Ministry has no authority to assess the security situation: “The ministry is only concerned with the technical end of things.”

Iskander Witwit, a member of the Iraqi parliament’s Security and Defense Committee, contradicted Hosseini’s evaluation. “We haven’t recorded any indications of oil investments in Kirkuk being too risky,” Witwit told Al-Monitor.

He said the Kurdish peshmerga wants “security anarchy so that the oil trade project between Iraq and Iran fails, because the [Kurdistan Regional Government (KRG)] wants oil to be transported through its soil.” The KRG, he said, “seeks to stop all oil and economic projects as long as Kirkuk is not under its control.”

Witwit also challenged a statement by Hosseini that security is at risk because Iran doesn’t have X-ray machines to inspect trucks coming from Iraq.

“This is an irrational reason,” Witwit said. “Truck security is both countries’ responsibility, and oil-transporting trucks are registered and take off from secured points to their designated destination. Therefore, they can’t possibly be used for any other purposes, considering the strict security measures in oil zones. Also, army and PMU troops are dispatched throughout the route used by the trucks.”

Meanwhile, it appears Iraq is moving ahead to expand its export options. Aziz Abdullah, the head of the Iraqi parliament’s Oil and Energy Committee, told Al-Monitor, “Talks between the [Iraqi] federal government and the [KRG] government on transporting oil via Ceyhan [Turkey] pipe have reached advanced stages.”

Ahmad al Askari, the head of the Energy Committee of the Kirkuk Provincial Council, believes those talks reflect Iraq’s “new direction not to solely rely on one window that could be shut on account of political disagreements.”

Speaking to Al-Monitor, Askari added, “Political and security concerns compelled Iraq to consider more than one means of exporting Kirkuk oil. Iraq started a pipeline to Turkey’s Ceyhan port that doesn’t go through the [Kurdish] region, besides the one that does go through the region. In addition, trucks have been moving to Iran since Iraqi forces took over Kirkuk.”

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“Iraq’s Energy Future Lies to the North”

By John Lee.

A new report from the Washington Institute for Near East Policy says that Iraqi hydrocarbons “will either be exploited by Iran and its allies or used for Iraq’s own benefit, transforming the country into an energy export hub between the Gulf states, Turkey, and Europe. The United States has a strong strategic interest in promoting the latter outcome.”

Authors James F. Jeffrey, a former US ambassador to Iraq and Turkey, and Michael Knights, who has worked extensively on energy projects inside Iraq, suggest that the US should put its weight behind a north-south energy corridor in which Iraq serves as an energy hub between ever-friendlier Gulf states and Turkey, ultimately forming an export bridge to Europe.

They add that Washington should also support the Basra-Haditha-Aqaba pipeline project to bring Iraqi oil and gas to Jordan.

The full paper can be read here.

(Source: The Washington Institute for Near East Policy)