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By Javier Blas and Grant Smith on 6/4/2020

LONDON (Bloomberg) --OPEC+ is set to extend production cuts to prop up the oil market after a breakthrough in high-stakes negotiations, and the cartel could meet as soon as this weekend to sign off on the deal.

After almost a week of wrangling, OPEC+ leaders Russia and Saudi Arabia clinched a tentative deal with holdout member Iraq, according to a delegate. The pair were pushing Iraq to stop shirking its share of cuts and even to compensate for failure to comply with cuts in the past.

The agreement -- though still to be ratified -- means OPEC+ will extend its record production curbs for another month until the end of July. Brent crude, the global benchmark, edged higher, nearing $40 a barrel.

The 23-nation partnership between the Organization of Petroleum Exporting Countries and other major producers has helped engineer a doubling in Brent prices since April. The oil price surge has revived the fortunes of major energy companies like Exxon Mobil and Royal Dutch Shell Plc, and reduced the fiscal hole in the budgets of oil-rich nations.

Failure to reach an agreement this month could have brought millions of barrels of oil onto the market, undermining a tentative recovery as the coronavirus lockdown eases. With U.S. shale production starting to come back online, OPECs careful management of the demand recovery is crucial.

The kingdom and the Kremlin, who were on opposite sides of a vicious price war until a peace deal in April, are now united against those in OPEC who have consistently failed to shoulder their share of the burden. Russia, a habitual laggard, has complied punctiliously with the historic deal brokered by President Donald Trump in April, and wants to make sure others are too.

Reunited in leadership of OPEC+ and grimly facing many more months, if not years, of oversupply, Russia and Saudi Arabia had little to lose and much to gain by imposing concrete measure to improve compliance by the laggards, especially Iraq, said Bob McNally, founder of consultant Rapidan Energy Group and a former White House official.

The details of the deal between OPEC+ and Iraq on compliance werent clear late on Thursday. A delegate said countries were waiting for a formal letter from Baghdad spelling out the details before calling for an official meeting. OPEC+ is used to dramatic glitches endangering deals at the last minute, so delegates said nothing would be agreed until formal communications take place.

Tougher conditions will be difficult for Iraq to accept. It made less than half of its assigned cutbacks last month, so compensating fully would require it to slash production by a further 24% to about 3.28 million barrels a day, according to Bloomberg calculations.

For a country still rebuilding its economy following decades of war, sanctions and Islamist insurgency, thats a tall order. The government risks a backlash from parliamentarians and rival political parties by acceding to foreign pressure and foregoing crucial oil sales.

Three other nations -- Angola, Kazakhstan and Nigeria -- also produced above their OPEC+ quotas in May. The three had earlier on Thursday already agreed to bring their production in line with the agreement.

The Deal. Enforcing better compliance among OPEC+ nations has been a motif since Saudi Energy Minister Prince Abdulaziz bin Salman was appointed.

In his first public outing after becoming energy minister, in Abu Dhabi last September, the prince was literally applauded for securing loud pledges of atonement from Iraq and Nigeria.

His tenure has also been stormy. In March, the princes attempt to force Russia to make deeper output reductions backfired spectacularly, splintering the entire alliance and igniting a destructive price war.

Two months ago, Prince Abdulazizs achievement in successfully restoring the OPEC+ coalition and forging an agreement for historic production cuts was overshadowed -- and delayed -- by a spat over Mexicos contribution.

The final deal in April set out historic cuts of 9.7 million barrels a day, or roughly 10% of global oil supplies, to offset the unprecedented collapse in demand caused by the virus lockdowns. Then a few weeks later, Saudi Arabia and its closest allies in the Persian Gulf promised additional supply restraint of 1.2 million barrels a day in June.

If a new accord is signed this weekend, the impact on the oil market could be dramatic. After the massive oversupply earlier this year, Russian Energy Minister Alexander Novak predicts there could be a supply deficit of 3 million to 5 million barrels a day next month, Interfax reported. Thats roughly in line with projections from an OPEC committee that met on Wednesday, a delegate said.

That would provide a stronger foundation for the crude price recovery, and also allow the cartel to start chipping away at the billion-barrel stockpile thats built up during the crisis.

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OPEC+ extends production cuts through July on deal with Iraq - WorldOil

OPEC is in negotiations with its members to find the best way forward, but talks appear to have stalled over one laggard, Iraq, which has failed to live up to its agreement under the cartels production cut deal. Does this give OPEC cover for meeting delays and overall noncompliance, or is it a sincere effort to get it onboard?

Whether Iraq can be brought in line and fully comply with its share of the OPEC deal is certainly doubtful. Yet interestingly enough, OPEC and Russia have staked the extension of the dealy past June, when the current level of cuts expire and cuts begin to ease, entirely on whether all laggard members bring production down to agreed-upon levels.

Either OPEC and Russia are certain they can get Iraq to bring its production down to its quota, or they are content to have the cartels production above normal.

Russia and Saudi Arabia both agreed that the current level of production cuts should be extended at least one more month. The caveat? That all other countries implement their established quotas in full.

Thats a pretty big ask, and if history repeats itself, its impossible. What this means for oil prices is that there would be no extension, inventories wont draw down as quickly, and oil prices will remain depressed along with demand for crude--which although it is picking back up thanks to lockdowns being lifted, is still about 20 million barrel per day under what it was before the pandemic.

Iraq isnt the only laggard, to be fair. Nigeria, Angola, and Kazakhstan are also not keeping up their end of the bargain. The cartel went to work trying to get the three, and Iraq, to recommit to the cuts, and with the exception of Iraq, all three gave the requisite assurances. Related: Are Investors Ignoring The Largest Financial Risk Ever?

Of course, that doesnt mean they will necessarily do so, but its at least a start.

Iraq, however, has not committed to bringing its production down to the quota in June.

OPECs compliance for May is thought to be about 89%. This isnt terrible considering the volume of how much is being cut. Still, compliant Saudi Arabia is declaring its unwillingness to continue its share of the cuts for another month unless the laggards get their act together. Laggards that include Iraq, whose compliance reached only about 42% in May.

OPEC wont even have the meeting this week unless Iraq agrees to improve its compliance.

Is it all just a ploy to manage market expectations in the run up to the meeting to ensure that whatever agreement is hatched is looked upon favorably, therefore maximizing the price impact? Is it a strategy to get out of extending the deal, perhaps as discussed with U.S. President Donald Trump? Is it designed to put maximum pressure on Iraq to comply?

Chances are, well never know. But one thing is for certain: Iraq will not comply with the deal--period.

In fact, it said as much. Iraq said it would fully implement cuts by the end of July-in their promise-to-fulfill-later kind of way that they have done in the past.

Iraq the Laggard

For the most part, when it comes to chronic noncompliance, we are talking about the usual suspects of Iraq and Nigeria. But Iraq is so much bigger.

Both countries have unique challenges when it comes to sticking to any production cut deal that OPEC or OPEC+ could ever hatch. For Iraq, it is their reliance on international oil companies, most of which operate in the semi-autonomous Kurdistan region. So on one hand, Iraq doesnt want to bite the hand that feeds it--big foreign oil companies--and on the other, Iraq has a tough time trying to regulate what goes on in the Kurdistan region. This is not even to mention the rocky political climate in Iraq. Related: Can Yemens Oil Industry Make A Comeback?

For Nigeria, its the fact that it has a strong reliance on its oil revenues. Most OPEC nations rely on oil revenue for a substantial part of the revenue. But for Nigeria, shutting down oil production and forgoing the revenue associated with that oil production is tough. Yet Nigeria has agreed, although its May compliance was still not up to snuff.

OPECs Other Problem

Is OPEC really worried about the extra barrels Iraq is pumping? After all, Saudi Arabia has overachieved its own quota for well over a year while the laggards basked in their overproduction. Most signs point to legitimate worry. Saudi Arabia has declined to publish its July OSP for July until after the meeting. The Kingdom is also raising its customs duties on hundreds of products to generate more non-oil revenue. In a similar vein, its tripling its VAT and suspending its cost of living allowances. These are worrisome signs.

Whats most concerning in the market, however, is the notion that the OPEC deal could fall apart entirely.

The previous deal catastrophe is all too fresh in our minds after Russia and Saudi Arabia--the two heavyweights in the deal--failed to reach an agreement over the cuts. The deal failure triggered a price war between the two, plunging the world into a glut of oil and sending prices spiraling as demand fell in the wake of the pandemic.

By Julianne Geiger for Oilprice.com

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Did Iraq Just Doom The OPEC Deal - OilPrice.com

Iraqs new government hopes to open a new page with Arabian Gulf countries to attract capital inflows from the region, Finance Minister Ali Allawi said.

Their main objections to the projects they are shown in Iraq is the routine and deadly bureaucracy that prevents any successful investment, Mr Allawi told reporters in Baghdad on Sunday.

We promised to look at this issue in a very positive way and lift restrictions to create a streamlined investment environment in Iraq, he said.

The finance minister, who visited Saudi Arabia and Kuwait last month, said he avoided discussing Iraqs need for financing to plug a huge budget deficit expected this year.

He said he focused instead on building a long-term relationship, describing Arab Gulf business involvement in Iraq as negligible, except for some investments in the oil sector.

We want to create a kind of balance and integration between Iraq and the Gulf countries, which have a little role in the Iraqi economy, Mr Allawi said.

Hopefully we will open a new page with regard to Gulf businessmen and the economic issues, especially with Saudi Arabia and Kuwait.

Among the opportunities Mr Allawi said he mentioned to his counterparts in Saudi Arabia and Kuwait were their countries expertise in solar energy, which Iraq needs to tap, and a consumer market dominated by imports from Iran and Turkey.

We want to encourage them, but for them to enter in force the environment has to change, he said.

Mr Allawis visit to the two countries was the first official overseas trip by a member of Prime Minister Mustafa Al Kadhimis government.

Mr Al Kadhimi, a former intelligence chief supported by the United States, signalled upon taking office early in May that one of his priorities was to take relations between Iraq and its Arab Gulf neighbours out of the deep freeze.

The new prime ministers closeness to Washington has helped revive regional interest in Iraq.

Arabian Gulf nations had all but given up on Iraq in the past decade, seeing it as a failed state gravitating more and more towards the orbit of Iran despite the presence of American forces in the country.

Mr Allawi is the prime ministers main ally in the cabinet, which is divided by loyalties to different Shiite, Kurdish and Sunni groups.

The veteran academic and former investment banker has written and lectured on the social history of corruption in Iraq, as well as what he regards as errors by Washington in the aftermath of the US-led invasion that toppled Saddam Hussein in 2003.

He is a nephew of the late Iraqi politician Ahmad Chalabi, a mathematician who attracted Mr Allawi and other educated figures into the opposition to Saddam.

As a member of past governments, Mr Allawi steered away from the ideological rhetoric that marked many of his peers since the first democratic elections in the post-Saddam era consolidated the Shiite ascendency.

Accompanying Mr Allawi on his trip to Saudi Arabia was Salem Chalabi, a prominent Iraqi lawyer who is well connected in Saudi Arabia and the UAE. Mr Chalabi is also a nephew of Ahmad Chalabi.

Although the sharp drops in oil price and the coronavirus pandemic have hit economies across the region, Arabian Gulf Nations still possess sovereign wealth funds that could invest in mega-projects in Iraq, Mr Allawi said.

He said Iraq and the GCC could ultimately become a nucleus for a larger, single market.

Updated: June 8, 2020 06:29 PM

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Ali Allawi: Iraq must cut red tape to do business with Gulf - The National

Seyyed Hamid Hosseini said on Tuesdaythat Irans export of products to neighboring Iraq improved in the second Iranian month in the current year [from April 21 to May 19] as compared to a month earlier.

Accordingly, the countrys export of non-oil commodities, which had decreased due to the coronavirus pandemic, was compensated, he emphasized.

Turning to the latest situation of Irans export of non-oil goods to neighboring Iraq, Hosseini added, the latest statistics on foreign trade of the country indicate that export situation of the country in the second Iranian month in the current year has ameliorated as compared to its previous month.

Given the export situation, Iraq was placed at the second rank among other oil-exporting countries, Hosseini stressed.

He pointed to Iraqi borders shared with the Islamic Republic of Iran and added, Iraqis Arab borders with the Islamic Republic of Iran are reopening amid the pandemic by observing health protocols.

According to the latest data, 50 Iraqi trucks have entered Iran to load cargoes, kept at Irans Mehran Customs, to Iraq, he said, adding, with the coordination made, it is expected that 500 other trucks would enter into the country to transport other cargoes via Mehran Border to Iraqi land and territory.

Shalamcheh Border Crossing will be reopened soon as this border had been closed due to the outbreak of COVID-19.

With the coordination made, other Arab borders with the Islamic Republic of Iran will be reopened soon, Hosseini added.

MA/FNA13990319001113

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Irans export of products to Iraq ameliorated amid pandemic - Mehr News Agency - English Version

BAGHDAD The Islamic State is stepping up its attacks in Iraq, fulfilling the expectations of many analysts that the extremist group would mount a comeback after the Iraqi government declared victory over it in 2017.

While the Islamic State has yet to show the same capabilities it had at its peak in 2013 and 2014, when it gained control of several provinces and population centers including Mosul, one of Iraq's largest cities the tempo of attacks has been increasing for over six months. This coincides with a period of domestic unrest due to widespread anti-government protests.

The US-led coalition against the Islamic State has also reduced its aerial activities due to heightened tensions between Washington and Tehran following the US assassination of Iran's top military commander, Maj. Gen. Qassem Soleimani, in January.

The Islamic State has been ramping up a campaign of violence in rural parts of Iraq since the second half of 2019, focusing on Diyala, Kirkuk and Salahaldin provinces, to the east and north of Baghdad. Both the frequency and character of the attacks have been steadily increasing, and there is data that suggests the Islamic State is moving skilled fighters to the area from Syria to stoke a new insurgency.

If true, this would be reminiscent of the group's buildup in 2012 and 2013. In April, the Islamic State staged 108 attacks in Iraq, including against an intelligence building in Kirkuk. A large assault targeted the paramilitary Popular Mobilization Forces on May 1 near the city of Samarra, showing that the Islamic State is willing to move beyond guerilla tactics and engage in coordinated and sustained fighting.

Iraqi security forces ride in vehicles travelling to Mosul to fight against militants of Islamic State at an Iraqi army base in Camp Taji in Baghdad, February 21, 2016. Ahmed Saad/Reuters

There are many reasons why the Islamic State has been able to increase its activity. First, it is deliberately targeting rural areas where the terrain is difficult to access and where the Iraqi security forces have a thin presence, which allows it to launch hit-and-run attacks without many losses. Fewer coalition air strikes and less drone surveillance have also given militants more freedom to move without fear.

With the recent protests in Iraq, the government has focused its security efforts on containing the unrest, which has reduced its bandwidth for dealing with the Islamic State. The ongoing failure of governance at the local level, which is one of the main drivers of the protests, has further sapped public confidence in Iraq's leaders, while persistently high unemployment has allowed the Islamic State to recruit desperate young men with offers of quick cash payments.

The Iraqi government's response to COVID-19, which has drawn resources away from countering the Islamic State to maintaining curfews and locking down large urban areas, has also allowed militants to move more freely in rural areas.

To make matters worse, the fight against the Islamic State in Iraq involves more than the Iraqi security forces. It also includes the state-sanctioned, mainly Shiite militias known as the Popular Mobilization Forces and the Kurdish peshmerga. But the response to recent attacks has been hampered by a lack of effective coordination and leadership between all these groups, as well as friction between some fighters and local populations. Iraq's elite, US-trained counterterrorism forces have also suffered from poor leadership and the slow recovery from losses they sustained during the war against the Islamic State from 2014 to 2017.

Despite all of these problems, there is some cause for optimism that Iraq will be able to meet the challenge of a resurgent Islamic State. After five months of political turmoil and two failed attempts, parliament approved a new government last month. The new prime minister, Mustafa al-Kadhimi, is a former intelligence chief who has promised to prioritize the campaign against the Islamic State and win back some trust from the Iraqi people.

Mustafa al-Kadhimi. Iraqi Parliament / Handout/Anadolu Agency via Getty Images

Al-Kadhimi will need to act quickly to quash the insurgency before it develops any further. Fortunately, the Islamic State is widely loathed by most of the Iraqi population. With new leadership in both the elite Counter Terrorism Service and the Interior Ministry, there is the potential for better intelligence gathering and more effective community policing.

Al-Kadhimi has sent signals, including through the arrest of militiamen in Basra accused of shooting at protesters, that he will tackle issues that have long plagued the Iraqi security sector, including corruption and weak accountability, and that paramilitary groups that threaten the rule of law will be brought to justice. Those steps will be vital for the state's ability to maintain control and avoid situations where local armed groups compete with state security forces and with one another.

Foreign governments and organizations are rightly concerned about the Islamic State's reemergence, and they have an important role in supporting Iraq. Most importantly, members of the US-led coalition should make a renewed push to dedicate resources solely to its core mission of degrading and defeating the Islamic State, avoiding tit-for-tat confrontations with pro-Iranian armed groups that tend to undermine relations with the Iraqi government.

Defusing tensions between the US and Iran will serve to improve Iraq's security in general, as it will give Iranian-backed paramilitary groups less incentive to attack US interests. American forces will also be less prone to using Iraq as an arena to push back against Iran. This is a message that coalition members should send to leaders in both Washington and Tehran.

Iraqi security forces patrol to enforce a curfew to help fight the spread of the coronavirus in central Baghdad, April 7, 2020. Associated Press

With the global downturn in oil prices amid the coronavirus pandemic putting Iraq under serious strain, foreign powers can provide economic assistance to prevent government collapse, contingent upon the new government undertaking vital reforms.

It is difficult to predict the trajectory of the Islamic State's activity. There are signs that the group will expand its capabilities in the coming weeks and months, while still falling short of being able to overrun large swaths of territory. A realistic assessment of the Islamic State's ability will be an important part of the response. Exaggerating its threat is unhelpful, but dismissing it and allowing a low-level rural insurgency to go on for months and years is dangerously short-sighted.

The government will also need to focus on the underlying causes and security gaps that allowed the Islamic State to regain strength in the first place.

It will undoubtedly be a challenge for Iraq's leadership to act quickly and decisively while spurring improvements in governance, but the country's leaders have been here before. With the benefit of hindsight and support from the international community, Iraq can avoid a repeat of the past.

Sajad Jiyad is a Baghdad-based political analyst and a visiting fellow with the Middle East and North Africa program at the European Council on Foreign Relations. He is the former managing director of the Al-Bayan Center, an Iraqi think tank.

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ISIS is making a comeback, and Iraq's government may not be able to handle it - Business Insider - Business Insider