Iraq's Oil Industry Threatened By Political Unrest

Politics, Geopolitics & Conflict

Clashes erupted on Tuesday in Iraq’s oil-rich Basra region following rocket attacks on the presidential palace, intensifying concerns that unrest in Baghdad could directly threaten the country’s oil industry. Following clashes between various armed factions in Basra, Shi’ite cleric Moqtada al-Sadr announced on Thursday that all armed factions he controls would be stood down to avoid escalation and what al-Sadr’s men called “sedition”. The clashes pit al-Sadr’s militias against his southern rivals in the Asaib Ahl al-Haq faction, which benefits strongly from oil revenues. Al-Sadr’s opponents in Basra claim that the Shi’ite cleric is attempting to cut off their oil revenues.

Russia has officially annexed four regions of Ukraine; however, Ukrainian forces are still advancing further in the south and the east, pushing back Russian forces from occupied territory. Moscow has also claimed Europe’s largest nuclear plant - Ukraine’s Zaporizhzhia plant as an official Russian asset. The territories annexed following a sham referendum include the following:

Protests in Iran have now entered their third week and they show no sign of abating. While Tehran is crying foul and blaming the U.S. and Israel for largely sponsoring and fomenting the protests, it is an irrelevant accusation. Foreign elements are, of course, keen to take advantage of any crack in the regime, but the reality on the ground for Iran is the same regardless. These are not protests against a specific aspect of life anymore. These are not protests against the cost of living, corruption, or anything that can be patched over. As political commentator and war reporter David Patrikarakos, whose family fled Iran in the 1970s, puts it: These are protests against the “very essence” of the regime.

After publicly criticizing Putin’s military commanders over Russian losses to Ukrainian forces in occupied territory, Chechen leader Ramzan Kadyrov now says Putin has promoted him to the rank of Colonel General.

Strikes at TotalEnergies’ 5 refineries in France (plus a storage depot) have made it necessary for the French to tap into their strategic reserves to make up for the shut-in of 240,000 bpd. Strikes were launched on September 27, and on Wednesday this week, France announced it had resorted to its reserves. Workers are demanding higher pay to account for rising inflation.

For market watchers attempting to navigate the impact of sanctions on certain investments, we note that regarding the EU ban on Russian seaborne oil exports that is set to go into effect on December 5th, a temporary exemption has been announced for oil transportation from the Sakhalin-2 project to Japan. Specifically, the exemption is for "the transport by vessel to Japan, the technical assistance, brokering services, financing or financial assistance related to such transport, of crude oil falling under CN 2709 00 commingled with condensate, originating in the Sakhalin-2 Project, located in Russia”.

Discovery & Development

Shell is hitting offshore investments hard with a second FID for its Malaysia-based Sabah Shell Petroleum Company for Phase 4 of its GKGJE deepwater offshore development project. The second FID comes after Shell pumped its first oil from the third phase of the project earlier this year. Phase 4 is eyeing its first oil in two years.

The U.S. Dept of Interior’s 90-day period for comments on its proposed 5-year offshore leasing plan has now ended, which means the DOI can now make a final decision. The plan—initially formulated in July—would end leasing in the Atlantic and Pacific. Under this five-year plan proposal, between 0 and 11 lease sales could be held (down from 47 under the previous administration for a five-year period). The proposal has been highly criticized by oil industry groups and political groupings who view the strategic advantage of hitting offshore oil hard at a time when oil prices are high and the U.S. is unsuccessfully attempting to wrest market influence from OPEC.

Deals, M&A, Big Oil Earnings Preview

Exxon is projecting another strong quarter as earnings season approaches, indicating support from natural gas prices and disclosing a $2 billion profit gain. Analysts are now expecting something similar to Q2’s record profits.

Shell, on the other hand, is expected to take a bit of a hit in Q3 on weaker refining margins.

In terms of deals, the biggest deal on the docket this week was Germany’s giant RWE, which will acquire Con Edison’s Clean Energy Businesses (CEB) in the U.S. for some $6.8 billion, with a $2.43 billion convertible bond to a unit of the Qatar Investment Authority, which will give QIA a 9.1% share in RWE.