Top Stories

The U.S. government is second-guessing its own Iraq strategy. Just five weeks ago, the Trump administration appeared to set Iraqi Prime Minister Mustafa al-Kadhimi as the keystone of its Iraq strategy, pledging ongoing security support and promoting $8 billion worth of prospective energy agreements with the potential to reduce Iraq's dependence on Iranian power. Now, Secretary of State Mike Pompeo has threatened to close the U.S. embassy in Baghdad and take military action against Iranian proxy groups that continue to launch rocket and roadside bomb attacks against American and allied positions around Iraq. This comes as Pompeo also tightened the window on Iraq's sanctions waiver from 120 to 60 days, emphasizing his willingness to keep using coercive tactics in U.S. diplomacy with Iraq. What are investors to think? How can the U.S. government promote multi-billion-dollar, long-term investments one month — and then threaten the next month to drastically alter the terms of the bilateral relationship in ways that would likely degrade Iraq's investment climate? The State Department has not offered any guidance so far. For more analysis of the situation, read the full story on Iraq Oil Report.

Iran-backed paramilitary groups are undeterred. Pompeo's threats prompted a flurry of activity in Baghdad, including public statements by powerful Iraqi paramilitary leaders like Hadi al-Amiri and Falah Fayyadh intended to rein in the rogue elements responsible for recent anti-U.S. attacks. But the rockets have continued. One of Iran's biggest strategic goals since 2003 has been to push the U.S. out of Baghdad — and Iranian proxy groups are apparently taking Pompeo's threat to leave the embassy as proof their recent tactics are effective. On Wednesday night, six rockets landed near the Erbil International Airport complex, which includes a U.S. military outpost. There were no casualties or damage reported. It was the first such attack there since January, when a missile hit Erbil as part of an Iranian attack in response to the U.S. killing of Qassim Soleimani.

Iran-aligned paramilitary groups aren't just targeting the U.S. — they've also used deadly force to suppress Iraqi protests against a political system plagued by corruption and incompetence. Since the nationwide protest movement began one year ago, more than 600 demonstrators have been killed. And while Kadhimi has promised justice, those responsible for many of the deaths have not been held to account. In addition to those who have been killed, dozens of anti-government protesters have been kidnapped; 53 remain missing, according to Iraq's High Commission for Human Rights. And as Samya Kullab reports for the Associated Press, their families face major obstacles fighting for their return. Ali Jasb, 21, was abducted a week into last year’s protest movement, in which he spoke out against powerful paramilitary groups. Now, his father is determined to bring the alleged kidnappers — including a powerful paramilitary commander — to trial. "I am afraid," Jasb Aboud said. "But I lost what was most valuable to me, so I’ve got nothing else to lose."

A different proxy war is playing out in the mountains of northern Iraqi Kurdistan. Military operations by Iran and Turkey against Kurdish rebels continue to disrupt rural towns and villages in border areas, causing damage to property and agricultural land. One new feature of recent operations against the Kurdistan Workers’ Party (PKK) and the Democratic Party of Iranian Kurdistan (PDK-I), is the use of drones, according to Shwan Mohammed and Maya Gebeily of AFP. Starting in 2018, both Iran and Turkey began using unmanned aerial vehicles (UAVs) for surveillance and even targeted assassinations. Drone use has expanded dramatically since Turkey launched a new assault in June, analysts and residents of affected areas told AFP. There is no public account of how many people have been killed in such drone strikes.

Energy and Economic News

Iraqi exports were up slightly in September, though still near six-year lows. Crude exports into Turkey through the Ceyhan pipeline increased a bit, bringing the country's nationwide export average up to 3.049 million barrels per day (bpd) for the month, up from 3.016 million bpd in August. Oil prices fell by $3 per barrel, however, reducing monthly revenues to just $3.167 million bpd. Iraq relies on crude sales for more than 90 percent of government revenues, and the lower oil prices are leaving insufficient funds to cover the $5 billion-plus needed every month just to fund government salaries, pensions and benefits, let alone allow allocations for investment spending. Read the full story on Iraq Oil Report.

That budget deficit is forcing Iraqi lawmakers to resort to further emergency financing measures. Iraq has given up on trying to pass a 2020 budget to finance spending for the rest of the year. Instead, Finance Minister Ali Allawi has requested the Cabinet to fast-track a law to cover deficit spending through to the end of the year. This is the second time this year the Cabinet has resorted to an emergency financing law to be able to cover government salaries, pensions and benefits. Get the full picture of Iraq's finances on Iraq Oil Report.

Iraq by the Numbers

$7.429 billion — the amount by which Iraq's total spending exceeded its revenue in the first seven months of 2020. That's a deficit of 22 percent, most of which is being financed through indirect borrowing from the Central Bank of Iraq's foreign currency reserves.

772,000 barrels per day — oil production taken offline from fields operated by international oil companies in 2020. Those cuts are creating financial liabilities for the Oil Ministry, prompting its recent attempts to change its payment obligations.

20.2 percent — production declines at fields controlled by Iraq's federal government as of August 2020, compared to their 2019 average output.

3.9 percent — production declines at fields controlled by the Kurdistan Regional Government as of August 2020, compared to their 2019 average output.

Do you need data? Reliable information can be hard to find, especially when it comes to Iraq's oil sector and economy. The Iraq Oil and Financial Dataset tracks hundreds of data points every month, including independently gathered field-by-field production figures, oil exports, revenues, government spending, and more. Our raw data is fuel for your insights. Click here for a free sample.

Interview of the Week

Hamed al-Jazairi is the commander of the Saraya al-Khorasani paramilitary group, which operates under the Iraqi government's Hashid program. In an interview with UTV on Sept. 27, he claimed Iran-backed militant groups are not seeking to drag Iraq into a war with the U.S. At one point, he even seemed to cast doubt on whether they are even responsible for recent attacks against U.S. targets, though he later conceded that some attacks might have been conducted by groups that are misguided about how to oppose the U.S. presence in Iraq.

What many think — that everyone is trying to drag Iraq into a war — is not correct. All of the Hashid factions, although they are brave and their hearts are burning over many issues and for many reasons — yet a reasonable person must realize that in this time we need to deal with things in a more precise way and a better way. These days, not every battle and not every war needs to be fought with bloody battles.

Jazairi suggested that the Iraqi government form a special committee to examine the issue, including the negative role of the U.S. in Iraq, U.S. responsibility for inciting attacks, and how to limit or reduce the U.S. presence.

Jazairi’s remarks suggest that paramilitary leaders are using a strategy of plausible deniability, disassociating themselves from attacks on the U.S. embassy while insisting that these unauthorized militia attacks be dealt with through dialogue rather than law enforcement. While not directly challenging Kadhimi's authority, Jazairi is also not backing him up in the effort to stop attacks on foreign diplomatic missions.

Sign up

Sign up here to receive This Week in Iraq in your inbox.