Newsletter – January 2021

Al Majal Logistics Services (AMLS) continues to grow its cold storage clientele by supporting a leading food and beverage distributor with cold storage services.

As part of our CSR activities and out of our belief in the role of music in preserving national culture and identity, Al Majal has signed an agreement to sponsor the new premises for the Basrah’s Children Orchestra, providing participating children with a safe haven and a positive experience to heal and thrive through music.

Daily coronavirus cases in Iraq have declined to a record low 596 on January 16, an 89% drop from the peak of 5,505 daily cases in September. Travel to and from 20 countries[1] has been banned after a new strain of the coronavirus spreads in these territories[2]. Daily deaths, meanwhile, have reduced by a remarkable 97% from a high of 122 in June, with overall recovery reaching near 93.8%. Iraq has inked a preliminary deal with Pfizer-BioNtech for 1.5 million doses of the coronavirus vaccine to arrive in the early New Year, which should bolster domestic demand sentiment somewhat. Iraq’s National Medicine Selection authority granted the approval for emergency use of the vaccine on December 27.

Economic revival hinges on the country’s energy sector, where several high-profile developments have taken place in recent weeks, with exports in December to increase by 5% to 3.30 Mb/d, although a 15% y-o-y decline from 2019’s levels due to OPEC+ compliance. Iraq’s oil exports averaged just 2.99 Mb/d in 2020, earning just US$ 41.926 B, lowest annual export volume and revenue total since 2014. A draft 2021 budget, which was approved on December 22, sets a record deficit of US$ 43.4 B, raising concerns over how quickly and surely energy plans could return support to the economy. This follows approval of the devaluation of the Iraqi Dinar by ~23% against the dollar to allow the government to generate more dinars from dollar-denominated oil sales. A potential downside is the likely increase in inflation, cost-of living expenses, and negative impact on contractors awaiting payment denominated in dinars.

A roundup of the latest developments in the Iraqi energy market is summarized in the table below.

Bearish market sentiment is expected to continue weighing on world oil demand outlook for the remainder of the year and into the first quarter of the New Year. A key contributor to the less-than-positive demand outlook is continued bearishness surrounding the return of road and transportation fuel demand in OECD Europe, now that various EU governments and some jurisdictions in the US have re-introduced curfews and partially or fully shutdown hospitality services, and with the emergence of a more contagious Covid-19 strain. Non-OECD demand might improve slightly due to positive momentum from Q3/Q4 carrying forward in China, where industrial activity indicators and petrochemical activity have improved. The situation should improve after Q1 as vaccination becomes increasingly widespread and effective.

In the Middle East, overall demand is expected to contract by 380 kb/d in Q4 2020 from Q3 levels, even though consumption had surged by near 970 kb/d in the third quarter, compared to Q2 levels of 6.91 Mb/d. Seasonality is expected to play a large part in demand reduction due to the winter season, especially in the UAE, Kuwait, Saudi Arabia, and Oman, as well as the continuation of social distancing measures, work and school from home, mobility restrictions, and travel restrictions on tourists and visitors from the EU, South Africa, and Australia, as a new coronavirus strain spreads. PMIs have stabilized, even though economic activity remains slow, reflected in lower diesel consumption. This has informed some noteworthy deals in the energy sector in recent weeks, summarized in the following table.

Top Energy Deals in the Region

The provisions of the Iraq laws respect the contractual relationship between parties, however certain contracts are governed by the provisions of the law to ensure the stability of relationships and to regulate the legal rights and obligations in addition to eliminating any prejudice which could occur between the parties. One of those contracts are commercial agency agreements, whereas the Iraqi legislator regulated this relationship and set the minimum requirements to ensure the smooth dealings and maintain the rightful fairness between the parties.

Iraq’s Ministry of Oil has signed an outline agreement with a Chinese consortium for the development of the Dhi Qar refinery. This agreement comes as an important step forward, and a prelude to the signing of the final investment contract for the Dhi Qar refinery project, which will have a capacity of 100,000 barrels per day (bpd).

Iraq’s Ministry of Oil has announced finalized oil exports for December of 88.2 million barrels, an average for the month of 2.85 million barrels per day (bpd), up from the 2.71 million bpd exported in November. Exports from oilfields in central and southern Iraq amounted to approximately 85.2 million barrels, while exports from Kirkuk amounted to 3.0 barrels.

The KRG’s Regional Council of Oil and Gas Affairs has published a report containing verified statistics covering the Kurdistan Region’s oil exports, consumption and revenues for period 1 January 2020 to 30 September 2020. The report provides a quarterly analysis of oil export information and average prices. The data verification was performed by Deloitte.

Iraq has signed an agreement with ZenHua Oil for a multi billion-dollar oil-supply deal. The Chinese firm was picked by Iraq’s State Oil Marketing Company (SOMO) after receiving bids from several traders.

Indian Oil Corp (IOC), the country’s top refiner, has loaded its first cargo of Iraq’s newly introduced Basra Medium crude grade, according to ship tracking data from Refinitiv Eikon.

Iraq’s State Oil Marketing Company (SOMO) said on Monday that Jordan is negotiating with Iraq to rebuy crude oil after Expiration of the contract.

Iraqi PM vows security changes after Baghdad bombing

A day after deadly dual bombings tore through a crowded market in central Baghdad, Iraqi Prime Minister Mustafa al-Kadhimi promised that the intelligence failure “would not be repeated.” Kadhimi said during an urgent meeting of the National Security Council that his government was working to develop a “comprehensive and effective security plan to meet the coming challenges” that he would personally oversee.

“What happened yesterday is a breach that we do not allow to be repeated. We promised our people to provide security,” said Kadhimi, who tweeted the day before that Iraq’s response would be “bold and earth-shattering.”

Two suicide bombers detonated their explosive vests in the busy Bab al-Sharqi outdoor market in central Baghdad on Thursday, January 21st , killing at least 32 people and injuring 110. In a statement posted to messaging app Telegram, the Islamic State took credit for the bombings.

In response to the attacks, Kadhimi fired the commander of the federal police forces, the deputy interior minister for intelligence affairs and a handful of other Iraqi security officials on Thursday, according to tweets from spokesman Yahia Rasoul.