Iraq: Both oil production & government formation pick-up

Real GDP is expected to rebound strongly to 2.9% this year from a 0.4% contraction in 2017 following the liberation of Iraqi territories from ISIS and the pickup in oil exports.

The overall decline in economic activity in 2017 was primarily due to a contraction in oil production, prompted by the OPEC+ agreement.

There was, however, a recovery in the non-oil sector. In August, exports of crude reached 111.6M barrels and revenues were USD 7.7B at an average price of USD 69.59 pb. In the same month last year, Iraq earned USD 4.6B from the sale of 99.7M barrels of crude oil.

Non-oil GDP recovered to grow 1.5% in 2017, supported by an improvement in national security and by the implementation of structural reforms. It contracted by 8.1% in 2016. Inflation picked up to 2% in 2017, driven by higher food prices, and is expected to remain the same in 2018.

Iraq's state oil company SOMO is looking at acquiring storage tanks in Asia and is open to discussions on more profit-sharing agreements as it seeks to expand its foothold in the region.

SOMO has formed a joint venture with the trading arm of Russia’s Lukoil, and has started supplying Basra crude to Chinese partner Zhenhua Oil with which it is soon expected to form a joint venture.

In line with Saudi Aramco, SOMO plans to switch the benchmark price for its Asian term crude sales at least in part to DME Oman futures.

Saudi Aramco plans to change the formula used to price its long-term crude oil sales to Asia starting from October, marking the first change in benchmarks for its official selling prices since the mid1980s. Asia’s share in Iraq’s oil exports has risen to as high as 73% in recent months, up from about 28% in 2006, as the country has stepped up efforts to penetrate the market. It is planning to add a new grade, Basrah Medium, to add more variety for customers.

Progress has been made in forming a government. The veteran secular Kurdish politician Barham Salih was elected on 2 October as Iraq’s next president. Salih appointed Adel Abdul Mahdi as Prime Minister and tasked him to form a new government within 30 days.

Salih, 60, a senior PUK member, is considered a moderate. He studied at British universities and holds a PhD in data and statistics. He has occupied many regional and federal positions of government over the last 20 years.

The president is mostly a ceremonial position and does not have executive powers. But Salih could play a key role in improving relations between Baghdad and the Kurdish region and between the Kurdish, Sunni and Shi’a blocs in parliament.

Abdul-Mahdi is an independent who previously served as Vice President, Minister of Oil and Minister of Finance. He is not allied with either of the two Shi’a-led blocs that each claim to have the most support after May’s elections, in which no party won an outright majority. He was previously a member of the Supreme Islamic Iraqi Council, a large Shi’a party with close ties to Iran.

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