INTELBRIEF

September 23, 2011

TSG IntelBrief: Iraq: Three Dimensional Chess, the Oil Game

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Overview

This piece builds on our last analysis which examines the likelihood of Iraq destabilizing politically, and new elections being called.

This could impact on the significant number of U.S enterprises active in Iraq, the future intention of U.S. businesses to become involved in Iraq (recalling at this stage that the International Monetary Funds sees Iraq with a greater growth potential than China)  as well as the thousands of U.S. contractors working there.

Finally, recent calls from Baghdad to Damascus for President Assad of Syria to stand down may also impact upon the 44,500 U.S. forces still deployed in the country.  There is a real risk of regional instability that would threaten the integrity of the Iraqi-Syria borders, but may spill over to affect a close U.S. ally - Saudi Arabia.

Given the significant costs of that deployment - according to the Congressional Research Service, it currently costs an average of $802,000 to keep one U.S. soldier in Iraq for one year - there will be understandable U.S. public and political concern over such a decision.

At that financial burn-rate, to maintain a force of 10,000 U.S. soldiers in Iraq from 2012 to 2021 would cost $80B. To keep 25,000 soldiers there would cost $200B. This $200B represents one-sixth of the $1.2 trillion target of the debt reduction "supercommittee."

Analysis

Over the last few days, The Soufan Group has been tracking an extraordinary sequence of meetings, which clearly underline the deep concern amongst Iraqi politicians that they are reaching a tipping point.

The (Kurdish) President of Iraq, Jalal Talabani and PM al-Maliki met last Friday night in Baghdad, following which a government press release said that: "The fruitful meeting tackled the recent developments on the Iraqi arena and the region. The President and the Prime Minister also exchanged views about how to buttress their alliance and settle all pending issues through dialogue."   The key word here to note is "Dialogue."

According to political sources, PM al-Maliki welcomed the Kurdistan Regional Government  (KRG) delegation's expected visit to Baghdad to discuss unsettled issues, saying: "Both leaders had confirmed necessity of the Kurdistan Region's delegation visit to Baghdad to settle the political, economic and social issues."

However, KRG PM Barham Salih cancelled on the grounds that Baghdad was not serious in settling political, economic and social issues.

Last Saturday morning, PM Al-Maliki visited the Parliament where he held talks with Speaker Usama Al-Nujaifi.  These talks were described as covering: "the developments on Iraqi political arena particularly the dispute between the Federal Government and Kurdistan Region's government and the implementation of Irbil agreement as well as tension between Anbar and Karbala provinces over this week massacre of Shi'ite pilgrims."

The press release noted that: "Al-Nujaifi and Al-Maliki urged more efforts to deepen national partnership and build trust among all Iraqis to help achieve stability and prosperity.  Al-Nujaifi called for all political forces to iron out their difference through dialogue."  Dialogue, again.

The Speaker said he would visit Irbil this Monday  to help resolve the dispute between Baghdad and the KRG.  However, the more concerning damning with faint praise came from PM al-Maliki who apparently: "…. welcomed Al-Nujaifi's initiative to visit Irbil, but stressed that the final say in all disputed issues should be for the constitution."

In other words, we can expect yet more frantic activity focused on the Iraq Constitution to ensure that all legislative decisions have to be ratified by the Iraqi Cabinet – which is of course headed by PM al-Maliki.

And this we believe is going to mean the crude attempt to get the crude oil law on the statute books as soon as possible, which in turn impacts on the profit margins of all international oil companies in Kurdistan, including several U.S. companies.

Numerically, the United States and Canada have the strongest representation in Kurdistan. U.S. companies established there include Aspect Energy, Hess, Hillwood International Energy, Hunt Oil, Marathon Oil Corporation, Murphy Oil, and Prime.

Canadian companies are: Forbes and Manhattan, Ground Star, NIKO Resources, Shamaran, Talisman Energy Inc and Western Zagros Resources.

. . For tailored research and analysis please contact: info@soufangroup.com

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