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Global Energy Advisory – 9th October 2015

Politics, Geopolitics & Conflict

Iraq/Iraqi Kurdistan Update

• Moody’s Insurance is putting out dire reports that Iraq’s oil revenues for the state could decline by 35% his year, in comparison to last year, while Iraq’s deficit could climb 18%. This is all helped along by a whopping $30 million per day that it needs to fund the battle against the Islamic State. At the same time, the government has reduced the funds available to the Oil Ministry, which in turn means that there are reduced funds to reimburse petroleum costs to contractors.

• The US Court of Appeals for the Fifth Circuit in New Orleans has dismissed the case between the Iraqi central government in Baghdad and the Kurdish Regional Government (KRG) over the latter’s unilateral oil exports in yet another victory for the Kurds in this long-running battle for oil autonomy.

• But it’s not all roses for Kurdish oil. KRG Natural Resources Minister Ashti Hawrami is facing an investigation into mismanagement and corruption that could threaten his control of the ever-important ministry. This is part of the fallout from an ongoing political stalemate that has sparked widespread protests in Iraqi Kurdistan as demonstrators bemoan the political stalemate and the lack of an official president since July—a situation that has also led to a delay in public service salaries. Protests have turned into clashes with police in some cases. There is not enough money to go around. Like Baghdad, the Kurds also have to fund a war against the IS, which is increasingly difficult to do with low oil prices and as the Kurds have been cut out of the Iraqi federal budget. On top of this the Kurds are taking in hundreds of thousands of refugees from the conflict that has spread from Syria. The presidential stickler has to do with current (outgoing) president Marsoud Barzani, of the Kurdistan Democratic Party (KDP), who is attempting to have his term extended due to the crisis with IS. Barzani has been president since 2005 and has already had one extension since 2013. The parliament is already splitting apart at the seams and this attempted extension is adding more pressure, particularly between the two traditional leading parties, the KDP and the Patriotic Union of Kurdistan (PUK). The renewed polarization has now hit the streets and threatens instability at a time when Iraqi Kurdistan can ill afford it. Investors here should be carefully monitoring…




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