View Full Version : Iraq's Mystery Money

09-26-2016, 01:48 PM
Magic mystery money... It's like pulling Dinars out of a hat!!!!!!!

Sounds like the IMF is playing hardball with their loan money unless Iraq does a magic trick for them.


Iraq’s Shrinking Revenues, the I.M.F. and the Oil Dilemma
By Ruba Husari | Scholar - The Middle East Institute | Sep 19, 2016.

The International Monetary Fund announced in July that it has approved a three-year, $5.34 billion loan for Iraq under the Stand-By Arrangement facility, which it said was focused on “implementing economic and financial policies to help the country cope with lower oil prices and ensure debt sustainability.” The promised financial assistance was made conditional on—among other things—Baghdad settling all debts to international oil companies (IOCs) without adding new debts. To satisfy that condition, this would require Iraq to allocate a big chunk of its oil exports to paying IOCs at the expense of revenues to the treasury. In the current dysfunctional political system in Iraq and the low accountability among its political class, the first victim of this arrangement will be Iraq’s oil market share where it faces fierce competition from Iran and Saudi Arabia.

The suggested reform program is very ambitious. It aims, according to the I.M.F., to bring spending in line with lower global oil prices, strengthen public financial management, and curb corruption, none of which the successive governments in Iraq had managed to do, or at least attempted to do.

The three-year loan comes on the heels of about $1.24 billion that Iraq received in 2015 from the I.M.F. under the Rapid Financing Instrument. It is also expected to open the door for Iraq for further external financing, which, according to some estimates, could amount to another $10 billion.

There are several caveats to the deal. An important one is that Iraq should pay all arrears owed to IOCs by year end and continue to be debt-free vis-à-vis those companies until the program starts. Those arrears are paid by allocating a certain number of barrels from the oil dedicated for export each month to the various developers of oil fields.

Since the beginning of 2016, Iraq has allocated about 236 million barrels of crude or some 30 percent of its total exports to end August for payments to IOCs.[1] Based on the average price Iraqi oil fetches on the market, those barrels were worth some $7.7 billion. The biggest chunk of this went to the payment of arrears to IOCs from 2015. For 2016, the Iraqi oil ministry budgeted total spending for all oilfields being developed by IOCs at $9.5 billion. This will help maintain output at close to its current levels, but not expand it significantly. Just how the I.M.F. expects Iraq to clear all arrears before the beginning of the program, and increase the spending to speed up the development of the oilfields to generate more revenue, while staying debt free, is a mystery.

The terms of the 11 contracts Iraq signed with IOCs since 2009 to develop its southern oil fields requires the ministry to pay back quarterly, in kind, all the cost incurred by the companies, in addition to a fee per barrel produced.

When the oil price was high, allocating the barrels was no issue. At $100 per barrel for the Brent benchmark, just 500,000 barrels of Iraqi export crude were enough to repay IOCs $1.5 billion/month. The remaining crude produced was enough to generate the revenues to satisfy Iraq’s budgetary needs. To keep payments at that rate when the oil price hit $30/barrel (or bbl), Iraq had to allocate more than three times that volume. This is more than 50 percent of its total oil exports that represent close to 90 percent of its budgeted revenues. Iraq had less oil to export and at a lower price, generating less and less revenues. Early this year, when Brent crossed the $30 bar, Iraqi crude fetched $22 and $23/bbl in January and February.

In 2014 and 2015, Iraq’s exports averaged 3 million barrels per day.[2] Thi