Iraq Negotiating With Neighbors to Increase Ties

Iraqi Prime Minister Iyad Allawi, currently touring his neighboring countries, told reporters that he discussed oil and gas agreements with Syria and Lebanon.

The agreement would permit oil to flow through Lebanon to Syria in an existing pipeline in exchange for kerosene, liquefied gas and benzene from Syria. Both countries need the approval of Lebanon.

The pipeline was in use until 1980 when Syria backed Iran in the Iran-Iraq war.

Allawi also said his country is prepared to participate in a natural gas consortium between Egypt, Jordan, Lebanon and Syria to supply the Arab states with Egyptian liquefied natural gas through an also existing pipeline.

Allawi is expected to tour in Saudi Arabia then continuing to Kuwait and the United Arab Emirates in his efforts to increase commercial and social ties with his neighbors.

Iraq Oil Fields Can Produce Billions

Although it may take years and billions of dollars in reconstruction, Iraq has the capacity to triple its oil production to 6 million barrels a day, which would make it the world’s third largest oil producer, behind Saudi Arabia and Russia.

Iraq may have over 200 billion barrels in yet to be explored regions, with over 110 billion barrels in proven reserves.

Iraq has 73 oil fields, but under the old regime, only 15 were developed, drilling about 2,000 wells. Compare that to Texas where 1 million wells have been drilled in the last 50 years.

Prior to the Gulf War in 1991, Iraq produced 3.5 million barrels a day. The old regime did not invest in construction and maintenance, reducing the yield of the fields to 2 million barrels a day in 2002.

Before the war, Iraq had hoped to dramatically increase its production to more than 6 million barrels a day, which would make Iraq the world’s third-largest oil producer after Saudi Arabia and Russia.

Baghdad Real Estate Booms

“Real estate is the best investment you can make” — says a potential buyer in an affluent suburb of Baghdad.

Although no banks offer mortgage loans and incomes remain low, confidence in the future of Iraq is reflected in the booming real estate market.

The fall of the regime has encouraged the return of many Iraqi exiles, who bring with them the desire and ability to buy property undervalued by years of onerous restrictions on property ownership.

Iraqi citizens with the means are now able to buy houses and property usually held for the privileged class of government and high ranking officials. This has created a tightening housing market for those who now feel free to trade up into more affluent neighborhoods.

As the economy recovers, real estate prices can only go up and many are buying now fueling the real estate boom.

Returning Iraqi Entrepreneurs Hopeful for Economy

Iraqi exiles are returning to Baghdad looking for business opportunities that are now possible with the old regime gone.

After decades of exile, many successful Iraqi’s who were forced to flee Iraq, are coming home and bringing with them money and business acumen gained from their years of exile in Europe and the United States.

Some see Baghdad as dominating the region, much as Dubai does now, as the commercial center of the oil rich region.

With the old regime gone, signs of plenty seem to be everywhere in Baghdad.

Supporting these hopes is the World Bank projection of a sharp rebound in 2004, ranging anywhere from 30% to 70% in an overall economy worth $17 billion to $22 billion.

Two-Thirds of Iraq Security Forces Trained

Security forces and the new Iraqi police have trained over two-thirds of the personnel needed to begin to meet the internal security needs of Iraq.

The new military for Iraq are also being trained, but as with the police and security forces they still face materials shortages in equipment and supplies.

These forces will begin to replace the Coalition forces on the ground in Iraq, allowing the government to manage its own security, as important component for Iraq’s sovereignty.

Insurgents plague the new government and the battle against them has had mixed results, due in part to the lack of equipment and also in part to the reluctance of some of the police and security personnel confront the insurgents, who view the police and security forces as collaborators.

This has prompted the Coalition to move up the time table in order to more quickly hand over day to day security to the new Iraqi units.

Some well-equipped Iraqi units seem to be performing well as they conduct large scale operations seeking to disrupt the insurgents and secure Baghdad and the surrounding areas.

Hopes Brighten for Iraqi Schools

For the first time in years, Iraq is financing it public schools, teachers and supplies. Under Saddam, education was not given funds needed to keep schools open.

The old regime viewed education as contrary to their interests and kept the schools sorely underfunded, the teachers ill paid and the classrooms without supplies.

Much needs to be done, but now under the new government, schools are being funded, and although still short of books and desks, classrooms are being repaired and teachers salaries have gone from as low as $3 per month to $200, a living wage bringing teachers back to schools along with the students.

Removing Saddam freed teachers to teach and students to learn, a fundamental strength for a growing and prosperous economy.

In what are certainly difficult times, educating the children of Iraq is a bright spot for the future.

Stock Market Rapidly Outpacing Expectations

Stockbrokers in Iraq’s new stock exchange are reporting double digit returns in less than one month of trading.

Record trading volumes are pushing stock prices drastically upwards for the 27 firms listed, with over 2 billion shares changing hands in only 6 trading sessions.

One trader reported selling shares for 5 million Dinars experiencing a profit of over 66%.

The trading is “historic” says Taha Ahmed Abdulsalam, the exchange’s chief executive.

Trading is currently being done manually while the exchange waits for electronic trading with a completely automated trading floor.

The stock exchange was developed by several brokerage firms and banks. Additionally, 100 companies are scheduled to be trading publicly in the next six weeks.

Foreign Oil Investors Encouraged by Iraq

Iraq is seeking to bring foreign investors into the oil and natural gas sectors in order to “manage the hydrocarbon resources and exploit them as best as possible” it was announced in a statement from the oil ministry.

A new council was formed to oversee this venture. The Higher Oil and Gas Council will solicit proposals for resource development and strategic marketing from foreign companies.

The council will play a significant role in Iraq’s recovery with the allocation of its highly sought fields to the major oil producers currently biddiing.

Prime Minister Iyad Allawi, appointed himself as the head of the council.

Allocation is expected to begin after the elections, and the council will focus currently on reconstruction and repair.

Iraq to Create World Class Sea Ports

Iraq will be awarding new management contracts in August for two major ports, Az-Zubavr and Umm Qasr, in its effort to create world class sea ports. The major upgrade is necessary in order for Iraq to allow the flow of goods into the country.

The contract will be for five years, during which time the ports will be modernized. Capacity will be developed for the efficient flow of commercial, military and civilian goods required for the rebuilding of Iraq.

Several international port operators has proffered bids and the final bid selection will be in August.

When completed both ports will be able to handle the influx of goods and materials Iraq will need for many years in the future as it brings its economy on to the world stage.

Implications of the Iraqi Bond Sale

Of the three sectors of a country’s monetary system; stock exchange, foreign exchange and government bond sales, the debt sales or the bond market is the benchmark from which all important indexes derive their foundation.

The new bond sale, slated to open on July 18th, is offering 91 day bonds. These sales will begin the process of establishing external value of the new Dinar and began developing a track record for the creditworthiness of the new government.

The goal of government bond sales is to issue 20 to 30 year bonds which will promote stability for the new currency. This initial bond sale will generate investor interest and serve as a watermark for future longer term bond sales.

Most important private commercial banks in Iraq are expected to participate in the bond sale which will give these newly established banks a revenue source as well as set a foundation for the next round of bonds.