Iraq’s Pro-Iran Resistance Continue Attacks Upon Neighbors

  

New Prime Minister Ali al-Zaidi has promised to bring all weapons under state control but the pro-Iran Resistance is not only being defiant but threatening Iraq’s relations with its neighbors.

Gulf States Weary Of Continued Threats From Iraq's Resistance

  

Pro-Iran Resistance attacks upon the Gulf States and Jordan during and after the Iran War have strained relations between Iraq and its neighbors. Before Baghdad was courting them for investment, but now that’s in jeopardy.

Iran And Its Iraqi Allies Have A Strategy For The War Where Is America and Israel's?

   

As the Iran War enters its second month Iran and its allies’ strategy has become apparent. They are focusing upon Iraq’s oil industry, the Kurds, the Baghdad Airport and neighboring countries. The Americans and Israel on the other hand don’t appear to have any plan.

Iraq Running Out Of Money Due To Iran War

  

The Financial Times reported on the economic crisis that the Iran War is causing for Iraq. It said that Baghdad has lost around $5.4 billion since the start of the conflict and it only has 1-2 months worth of cash to cover government salaries. The Central Bank on the other hand said its reserves could cover 12 months worth of oil exports. The problem is by law the bank can’t cover the government’s budget so it has to issue bonds or some other means to provide money. Government salaries and benefits are the largest part of the budget because adding public workers is the main means that the ruling parties have to maintain their support. Before the war Baghdad was running into problems meeting its obligations because of low oil prices. Now it is barely making any money with the Strait of Hormuz closed.

Iraq’s Government Failing Again To Solve Country’s Power Outages

Few issues have shown the faults of the Iraqi government as its inability to meet the country’s power needs. Nine years after the fall of Saddam Hussein and there are still daily power outages, especially in the summer time when temperatures soar, and demand skyrockets. In recent months, Baghdad has said that its major building projects of new power plants and installation of generators will end the nation’s electricity imports, and eventually end the blackouts. There’s even been talk that the government will be able to export power. Analysis of Iraq’s situation points to the country achieving none of these goals any time soon.

Iraq’s power output has consistently increased since 2003, but it has always fallen behind what is needed. In the first quarter of 2012 for example, the country reached a new post-invasion high of 7,918 megawatts. That was a 24% increase from the previous quarter. The aggregate numbers are deceiving however, as Kurdistan accounted for 60% of that growth, but is not connected to the national grid. The Kurdistan Regional Government (KRG) has successfully carried out a series of privately owned power plant construction projects, which provide around 20 hours of coverage. Another 22% of the increase was from imports, mostly from Iran. Iraq has three generator ships it contracts from a Turkish company that produce 270 megawatts per day, and a series of power lines from Iran that service eastern Iraq with another 912 megawatts, a 29% increase from the last quarter of 2011. In April 2012, the Electricity Ministry announced that it signed a new deal with the United Arab Emirates to bring in two additional power ships that will add another 250 megawatts, and it has a contract with Egypt to import 150-200 megawatts starting this summer. Output from the state-run power plants went up as well by 18% in the first quarter of this year. Despite the amount of electricity going up for the last nine years the problem has been that it has never come close to meeting demand. During the summer, it’s estimated that the country needs around 15,000 megawatts. That means that there are constant power outages and blackouts as the grid is overwhelmed. On June 22, the national grid went completely out for 24 hours. The authorities claimed that it ran out of fuel, but sources said that the real reason was a jump in usage blew out the entire system. These consistent shortages were also the cause of two separate protest movements in 2010 and 2011, showing that members of the public had grown tired of the situation.

The government is aware that this is a pressing issue, but its plans have consistently failed. That has not stopped the grand announcements though. Deputy Premier Hussein Shahristani who is in charge of the country’s energy policy claimed that Iraq’s power output would reach 9,000 megawatts by July 2012, 14,000 by the end of the year, and then jump to 20,000 megawatts by the finale of 2013, effectively putting an end to its problems. That will be due to a planned twenty major projects coming on line in the coming months. The Electricity Ministry has also said that it would stop all power imports by the summer of 2013, and Shahristani has talked about exporting power next year as well. As part of these plans, officials announce a new power plant opening or a new contract being signed to build one nearly every month. At the end of June for instance, a new 200 megawatt plant opened in Maysan, which was built by South Korea’s STX company for $220 million. Despite the positive spin the government has tried to put on things, there have actually been far more negative reports coming from the Electricity Ministry. It has complained about power plants in Anbar, Baghdad, Salahaddin, Babil, and Karbala all being behind schedule. More importantly, while it has talked about eventually ending power imports, it has only increased them in the last several months. An independent assessment predicted that Iraq would only reach 18,000 megawatts by 2015, meaning that it would not reach its goals or timetable. There were also continued reports of government ineptitude like when four generators were found at the Khor Zubayr port in Basra three of which had been there since 2005, and the fourth since 1988. There is also widespread unhappiness with the Electricity Minister Abdul Karim Aftan, with talk of his own Iraqi National Movement perhaps asking him to resign, and stories that Deputy Premier Shahristani and other top officials have been involved in corrupt contracts in the power sector. Given all these problems it’s no wonder that few believe that the Electricity Ministry will be able to solve the power problems that Iraq faces. In fact, the government’s plans have consistently been in disarray, and its continued promises that a solution is just around the corner has cost it its credibility with the public.

Iraq has been suffering power shortages since the 1991 Gulf War when most of its infrastructure was bombed, and then much of it was haphazardly put back together under international sanctions. Since 2003, the national grid has slowly expanded, but it has taken a long time. Because of the public discontent with the slow rate of progress, the government has responded with a series of lofty promises, none of which have come to fruition. This has hurt the government’s standing, and led to electricity being one of the biggest issues in the country. Unfortunately for Iraq, this situation doesn’t appear to be changing any time soon, which will lead to more discontent, and show the limitations of the state’s planning and centralized system.

SOURCES

Agence France Presse, “Iraq aims to double power provision in a year,” 5/5/12

AIN, “IS demands Electricity Minister to resign,” 5/9/12

Aswat al-Iraq, “24-hour electricity supply promised in Kurdistan,” 5/30/11

- “Four forgotten electricity stations found in port,” 5/22/12

Azzaman, “National grid grinds to a halt in Iraq,” 6/22/12

Brosk, Raman, “Parliament chairman objects to reading electricity report calling for dismissal of deputy PM Shahristani,” AK News, 4/21/12

Dunia Frontier Consultants, “2011 Year in Review, Foreign Commercial Activity In Iraq,” March 2012

Reuters, “Iraq enters dealt o buy power from UAE,” 4/15/12

Sabri, Abdulla, “New 200MW power plant launched in Misan,” AK News, 6/26/12

Saleh, Khayoun, “Iraq’s power output to reach 20,000 megawatts in 2013,” Azzaman, 6/18/12

Special Inspector General for Iraq Reconstruction, “Quarterly Report and Semiannual Report to the United States Congress,” 7/30/11

- “Quarterly Report to the United States Congress,” 4/30/12

Wanan, Jaafar, “Iraq to import 250MWs from UAE,” AK News, 5/11/12

Foreign Investment Almost Doubles In Iraq In 2010

In February 2011, the private financial services company Dunia Frontier Consultants released a report on last year's investments in Iraq. 2010 saw an almost 50% increase in foreign companies putting their money into Iraq. Turkey was the largest foreign investor, while real estate, not oil, was the sector that received the most interest. Last year also saw fewer big projects announced than in the previous two years. Dunia took that as a good sign, since many of the major deals never materialized, and smaller ones are more likely to succeed. In the future, Dunia thought that the reduction in violence, and the relatively stable political scene would mean a steady increase in foreign investment. Iraq is therefore emerging as a growing market with huge potential.

In 2010, 156 companies from 34 countries invested $42.668 billion into Iraq. That was a 48.7% increase from 2009's $28.7 billion. From 2003 to 2007, the amount of money put into Iraq was rather small, and fluctuated up and down each year. In 2003, the year of the invasion, $3,869 billion was invested. That went up to $6,735 billion in 2004, but then down to $1,168 billion the next year. In 2006 investment went up to $5,045 billion, but then the civil war led companies to lose interest, and only put $2,697 billion into Iraq in 2007. The end of major violence after 2008 was the major reason why foreign countries and businesses began putting serious money into Iraq. Corporations are still watching the political and security situation in the country. Many see violence as being highly targeted and political in nature today, and thus not a real threat to business. Prime Minister Nouri al-Maliki's second term after the 2010 elections, and his State of Law list maintaining control of the Oil Ministry were also seen positively by business, because of the continuity in the administration.

Year on Year Change in Foreign Business In Iraq 2003-2010

Year	$ (mil)
2003	$3,869
2004	$6,735
2005	$1,168
2006	$5,045
2007	$2,697
2008	$17,932
2009	$28,700
2010	$42,668

The size and nature of investment changed in 2010. 2008-2009 saw a number of major, multi-billion projects announced. Many of those fell through and never materialized. 2010 by comparison, saw more medium sized deals. The average size of investment deals decreased from $683 million in 2009 to $320 million in 2010. Dunia thought this was a good sign because the smaller projects are more likely to be completed and turn out to be successful business ventures. Overall, it thinks that investment will largely follow GDP growth in Iraq, and peak in 2015. The International Monetary Fund estimated the nation's GDP growth at 11.5% in 2011, which could mean up to $100 billion in investment annually by the second half of the decade.

Investment By Country 

Country	$ (mil)	% of Total
Turkey	$14,883	34.9%
Italy	$5,292	12.4%
France	$4.243	9.9%
South Korea	$3,269	7.7%
USA	$1,997	4.7%
China	$1,736	4.1%
UAE	$1,318	3.1%
Canada	$1,247	2.9%
England	$1,215	2.8%
Australia	$883	2.1%
Russia	$752	1.8%
Jordan	$669	1.6%

2010 saw a major shift in which countries were placing their money in Iraq. 34 countries did business in Iraq last year. Turkey became the #1 investor with 22 deals. In previous years, Turkish companies had small projects in the $100-$300 million range. In 2010 they signed a number of major projects. Turkey was also the number one trade partner with Iraq at an estimated $6 billion in 2010. That's expected to grow 150% in the next five years.

Turkey passed the United Arab Emirates (UAE) as Iraq's top investor. It dropped to number seven because of the world recession. Before, the UAE announced a number of large investments, but many of those fell through.

Italy was number two on the list. An Italian company scored a $4.6 billion deal in April 2010 to build a new port at Faw, Basra, which will be the largest infrastructure project in decades in Iraq. Italian businesses are also investing in real estate, energy, and industry.

France was number 3. Former French Ambassador to Iraq Boris Bouillion aggressively pushed his countrymen to come to Iraq. France also has consulates in Basra, Irbil, Nasiriyah, with plans to open more in Anbar and Wasit, along with an embassy in Baghdad, which greatly helped with its investments. Six large French companies announced deals with Iraq in 2010 ranging from cement to power plants. Smaller French firms have also shown an interest to join the fray.

South Korea was ranked number four. Its STX Heavy Industries announced a $3 billion engineering and construction deal in December 2010 with the Ministry of Industry to rehabilitate a plastics factory in Basra.

The fifth largest investor in Iraq was the United States. U.S. companies were mostly involved in oil and gas, but others were involved in finance, real estate, hospitality, transportation, and agriculture. The U.S. has around $720 million in the non-energy sector of the country. That was a sizeable increase from 2009.

Despite oil being Iraq's most important and well known asset, real estate attracted the most interest in 2010. $14.107 billion was invested in housing last year, compared to $5,443 in oil and gas. The latest studies of the country's housing needs estimates that it is short 1.6 million units. The government has finally started to address this issue. In December 2010 it announced a $11.28 billion project to rebuild Sadr City in Baghdad with a Turkish consortium. In four years, 75,000 housing units and other facilities are supposed to be built. The Iraqi National Investment Commission and Ministry of Planning said that they wanted 3.5 million new units worth $25 billion by 2020. The government is hoping 85% of that money will come from private firms. Those plans mean that housing will be a major sector for investors in the coming years. It will also be tied closely to politics, which could make it volatile as well.

Investment by Sector 

Sector	$ (mil)	% of Total
Real Estate	$14,107	33.1%
Transportation	$6,733	15.8%
Electricity	$6,074	14.2%
Industry	$6,040	14.2%
Oil & Gas	$5,443	12.8%
Real Estate	$1,829	4.3%
Water & Sanitation	$1,317	3.1%
Health	$757	1.8%
Agriculture	$244	0.6%

Energy was the fifth largest industry receiving foreign investment. In 2009 the country's four largest oil fields, Rumaila, West Qurna, Majnoon, and Zubayr were auctioned off. By the end of 2010 they all reached their initial production targets. Major service contracts were given to companies like Halliburton, Weatherford, Baker Hughes, Schlumberger, Worley Parsons, Petrofac, China's Daqing Oil Field Co., and Australia's Leighton Offshore Private Ltd. Leighton for example, won a $733 million deal for new floating oil terminals in Basra. Iraq needs new pipelines, several thousand wells, drilling rigs, water pumping and injection systems, cement, chemicals, power stations, industrial zones, workshops, warehouses, work camps, residential areas, and roads, which means oil and gas will remain a growth industry in Iraq.

Iraq's two largest provinces have received the majority of foreign capital, but it is slowly spreading to other regions of the country. Baghdad received 39.8% of foreign investment, while Basra had 34.5% in 2010. Baghdad mostly had infrastructure deals for roads, sanitation, and housing, and Basra had oil, gas, electricity, industry, and infrastructure concerns. There were 43 projects announced in Basra in 2010, compared to 18 in Baghdad. Kurdistan received the third most attention with companies from Turkey, Jordan, South Korea, China, and the UAE all showing interest. Last year also saw foreign businesses moving into Karbala, Wasit, Maysan, and Najaf, which received as much foreign money as Kurdistan last year. The three main draws were oil in Maysan and Najaf, and tourism in Karbala and Najaf. Karbala also had a cement factory deal, and Najaf a $600 million monorail contract with a Canadian firm. Dhi Qar was an exception. It received less than 1% of the country's foreign capital. Several multi-billion dollar housing and industrial development fell through, and the provincial council ended up dissolving its investment commission in June 2010 due to its poor performance.

Investment by provinces

Province	$ (mil)	% of Total
Baghdad	$16,965	39.8%
Basra	$14,702	34.5%
Kurdistan	$2,960	6.9%
Karbala	$1,738	4.1%
Maysan	$1,430	3.4%
Wasit	$1,226	2.9%
Najaf	$1,177	2.8%
Muthanna	$682	1.6%
Ninewa	$633	1.5%
Qadisiyah	$479	1.1%

Anbar, Babil, Dhi Qar, Diyala, Salahaddin, and Tamim provinces all received less than 1% of investment each


Since 2010 saw a move towards small projects, Dunia looked at those worth less than $1 billion to see where most of the money was going in the country. After the large deals were eliminated, Turkey was still the main investor in Iraq. Italy and South Korea fell down to the bottom of the list, while China and the UAE moved up. By sector, energy moved from number five to number one, while real estate moved to number three. Oil and gas could eventually overtake housing as the main focus of investment in the future. Electricity also moved from number three to number two. There are now four privately owned power plants in Iraq, up from none in 2008, which account for 13% of the country's electricity supply. French, Turkish, and Italian firms all signed deals to install new turbines and upgrade existing facilities in Basra, Karbala, Najaf, Ninewa, and Baghdad in 2010. Investment by province still saw Baghdad and Basra at the top, although the latter moved to number one, and Kurdistan and the south remained next.

Investment by country less than $1 bil

Country	$ (mil)	% of Total
Turkey	$3,603	20.6%
France	$2,743	15.7%
USA	$1,997	11.4%
China	$1,736	9.9%
UAE	$1,318	7.5%
Canada	$1,247	7.1%
England	$1,215	6.9%
Australia	$883	5.0%
Russia	$752	4.3%
Italy	$692	3.9%
South Korea	$269	1.5%

Sector investment less than $1 bil

Sector	$ (mil)	% of Total
Oil & Gas	$5,443	25.7%
Electricity	$4,574	21.6%
Real Estate (Residential)	$2,827	13.3%
Transportation	$2,133	10.1%
Industry	$1,940	9.2%
Real Estate (Commercial)	$1,832	8.7%
Water & Sanitation	$1,317	6.2%
Health	$757	3.6%
Agriculture	$244	1.2%

Provincial investment less than $1 bil

Province	$ (mil)	% of Total
Basra	$5,310	29.9%
Baghdad	$3,281	18.5%
Karbala	$1,647	9.3%
Kurdistan	$1,557	8.8%
Maysan	$1,355	7.6%
Wasit	$1,161	6.5%
Najaf	$1,115	6.3%
Muthanna	$647	3.6%
Ninewa	$600	3.4%
Qadisiyah	$454	2.6%
Salahaddin	$380	2.1%

The combination of growing political stability, a vast improvement in security, huge natural resources, and great demand for housing and other services all make Iraq of great interest to foreign companies. Investors largely stayed away from the country from 2003-2007, but when violence finally dropped off in 2008, there was a surge in foreign capital coming into Iraq. Investments nearly doubled from 2009 to 2010. Increased oil revenues with the help of foreign energy interests will mean more money to be spent and deals signed in the future. Hopefully, this will mean jobs for Iraqis. More than half of the workforce is jobless or underemployed. The government is the largest employer, and many of those positions are useless, and only exist for political patronage, and to put a cap on social unrest. With all the new projects announced, there should be a surge in employment opportunities in Iraq. Unfortunately, the country has followed the trend in the rest of the Persian Gulf to import cheap labor from other countries despite its own desperate needs. Large amounts of cash being handed out also offers more opportunities for corruption, which is another major problem the country faces. Many developing countries have the same issue, but in Iraq the magnitude is much larger as it is ranked the fourth most corrupt nation in the world currently. Iraq is desperate for growth after two decades of war and international sanctions. Money is finally flowing into the country, but it needs to make sure it is spent well, and actually provides for the people.

Top 30 Deals In Iraq, 2010

Amount ($ mil)	Companies, Country	Industry	Location	Job
$11,280	Kur Insaat, Kasova Insaat, Iskaya As, Kocoglu Insaat, Turkey	Real Estate	Baghdad	75,000 housing units in Sadr City
$4,600	Technictal, Italy	Transportation	Basra	Faw port construction
$3,000	STX Heavy Industries, S. Korea	Industrial	Basra	Plastics factory construction
$1,500	Alstom, France	Electricity	Multiple	Power plants and infrastructure
$1,100	Mass Global/ Danieli, Jordan/Italy	Industrial	Kurdistan	Chamchamal smelter and steel plant
$966	Unnamed, France	Water & Sanitation	Baghdad	Rusafa water project
$924	Shanghai Electric, China	Electricity	Wasit	Power plant
$750	Acarsan Group, Turkey	Health	Multiple	5 hospitals
$733	Leighton Offshore Private, Austrial	Oil & Gas	Basra	Oil export terminals
$700	Wintercroft Capital, Russia/ Switzerland	Electricity	Maysan	2 thermal power plants
$600	TransGlobim International, Canada	Transportation	Najaf	Najaf monorail
$446	Calik Energy, Turkey	Electricity	Karbala	Power plant and installation of 10 turbines
$340	Gulftainer, UAE	Transportation	Basra	Um Qasr container dock
$318	TPIC, Turkey	Oil & Gas	Basra	Drill 45 wells at Rumaila oil field
$299	Iraqcan, Canada	Real Estate	Baghdad	5,000 housing units
$296	Copperchase, England	Real Estate	Najaf	3,000 housing units
$270	China National Building Material Co. Ltd., China/Iraq	Industrial	Muthanna	Cement factory
$268	Enka Insaat Turkey	Electricity	Ninewa	Power plant and installation of 6 turbines
$250	Akkon/East Building, Turkey/UAE	Real Estate	Multiple	Sale of steel framed houses
$238	Amwaj International Company Iraq/Jordan/ UAE	Real Estate	Baghdad	Hotel and 3,000 housing units
$224	Weatherford, USA	Energy	Maysan	Drill 20 wells at Bazargan oil field
$220	World Solutions International, USA	Real Estate	Basra	2,500 housing units
$220	Merchantbridge/LaFarge, England/France	Industrial	Karbala	Refurbishing Karbala's cement factory
$205	Eastern Lights, Turkey	Energy	Baghdad	Install 4 turbines at power plant
$200	Weatherford, USA	Energy	Basra	Drill wells at Rumaila oil field
$200	Schlumberger, France	Energy	Basra	Drill wells at Rumaila oil field
$195	Calik Holding/GAP Insaat, Turkey	Transportation	Baghdad	Renovate 19km BIAP highway
$175	UI Energy, S. Korea	Energy	Kurdistan	3 oilfields
$130	Arcelor Mittal/Dayen Dis Ticaret Ltd., Luxembourg/ Turkey	Industrial	Kurdistan	Build new steel mill near Sulaymaniya
$120	Elegan Turizm/Koc Holding/Divan, Turkey	Real Estate	Kurdistan	Luxury hotel in Irbil

SOURCES

Dunia Frontier Consultants, "Foreign Commercial Activity in Iraq 2010 Year in Review," 2/5/11