Iraq

Any sharp drawdown of U.S. forces in Iraq grants Iran a golden opportunity to expand its influence there and threatens to inflame sectarian tensions.

Iraq’s new prime minister has formed a government in the hope of uniting the country’s factions, but challenges in combating corruption, powerful militias, and foreign influence loom.

Iraq faces an uphill battle in meeting its obligations to the historic production cut agreement reached by the Organization of Petroleum Exporting Countries (OPEC) and other major producers such as Russia. The production cuts are due to begin today. Not only is Baghdad mired in deep economic and political crises that show little signs of abating but Iraq’s complex service agreements with international oil companies (IOCs) operating its southern fields means that the Gulf producer would actually have to pay more money to the foreign firms working in its oil sector in excess of existing service fees if it demands the IOCs rein in output to help Iraq meet its targeted quotas. The supplemental fees, which could be millions of dollars, are stipulated in the oil field service contracts that Iraq holds with foreign oil companies that have been assisting with its oil production capacity expansion program over the last several years. The payments structure for Iraq’s service contracts means that output cuts put an added financial strain on the ability of OPEC’s second largest oil producer to comply fully with its pledged one million b/d plus output reductions in the coming months.  

This year, an armed confrontation between Iran and the United States or one of its allies over Iran's involvement in regional conflicts and support of militant proxy groups was included as a top tier priority in the Center for Preventive Action’s annual Preventive Priorities Survey.

Qassem Suleimani and Tehran have won the battle for Baghdad. U.S. policymakers should understand that—and leave.

My grandmother had a saying: “Think before you speak.” The saying, said to me and my brothers as children, was intended to help us avoid mindlessly blurting out something we would later regret. I cannot help thinking of my grandmother’s useful adage in watching the news regarding the ongoing conflict between Iran and the United States. For days, I have been trying to craft a blog on the topic of the current state of conflict across the Middle East. My efforts started before the Christmas holiday when I was trying to update an opinion article I published in the Houston Chronicle in early December about how widening political unrest across the Middle East and beyond could lower the operational resilience of oil producers within the Organization of Petroleum Exporting Countries (OPEC) to respond to unexpected events that could hit global oil markets in 2020. But events on the ground have been fast moving and while this basic point about oil is obviously relevant, it seems now any geopolitical analysis has to start with a better understanding of the geopolitical conditions emerging in the aftermath of the U.S. attack that killed Iranian Commander Qasem Soleimani. Every nation has core strategic interests that do not vary with the personalities leading them or the nature of the ideological bent of a particular ruling elite. We often forget that in U.S. foreign policy and it leads us to mistakes. Iran has a core national interest in making sure there is not a brutal ISIS-led state on its border. That goal doesn’t conflict with U.S. interests. While the escalating events of recent days shows that the United States needs to reflect on the costs that Iran can impose on American interests in an escalating conflict, Iran’s leaders also need to reflect on how their own activities in Iraq and Syria contributed to the outgrowth of ISIS. It is very unclear if destabilization of other neighboring governments is a core national interest of the Iranian population. Proxy militias on the ground can, in fact, have diverging interests from their sponsors. My point is that if strategists don’t ask the right questions, leaders won’t get the right answers. Iran, like any other nation, has many core interests and one of those core interests is to make sure that the government, state military, and militias of Iraq are not a direct threat to Iran’s citizens. It is reasonable for average Iranians, even those who do not support the foreign policy of their government, to have this concern. It is a basic concern that would not go away, for example, even if there was a shift in the Iranian government that ushered in a more benign foreign policy. “Regime change” will not alter this Iranian concern vis a vis Iraq. Any successful U.S. policy must recognize that all nations have core strategic interests that go beyond ideology and often stem from geography. The Islamic Revolutionary Guard Corps (IRGC) news outlets have been running commentaries blaming Iranian President Hassan Rouhani for pushing the country from “a state of peace to a state of war.” The tone of the commentaries, especially in light of subsequent events, could suggest that the IRGC faction believed an escalation in conflict was on its way. But IRGC’s tactical aims and motives shouldn’t cloud analysis of Iran’s geography and how it shapes legitimate core interests of the country. Any negotiations to conflict resolution must consider this. The next step to analysis is to consider the momentum of history. Looking at the conflict between the U.S. and Iran, it is tempting to give in to the sentiment that history is destiny. Americans watched in horror as Iranian protesters and militia leaders stormed the U.S. embassy in Baghdad at the end of December in an event that appeared intended to rekindle historical memories of the frightening capture of U.S. diplomats in 1979. But yet another tragedy is that the subsequent U.S. attack on Soleimani is almost certainly reigniting renewed anger that links to the historical overthrow of Iranian nationalist Prime Minister Mohammad Mosaddegh, who famously led resistance to foreign interference in Iran’s oil industry and political affairs back in 1950s. Conflict resolution efforts must address these historical pathologies head on or risk failure. Iraqi anti-government, nationalist protestors have called for an end to rampant government corruption and a major revamp of the current system of political patronage that enabled Iran’s interference in Iraq’s every day affairs. Iran benefits from overland trade with Iraq that more recently included complex energy arrangements that help Tehran obviate some of the economic pain of the tightening vise of U.S. sanctions. Protests briefly halted production at the smaller Nasiriyah oil field in late December and anti-government demonstrators had also blocked roads to major southern oil fields such as the Majnoon field and even the giant Rumaila field, preventing oil workers from reaching certain sites for a brief period of time. There has been an ongoing risk that some oil workers could consider joining anti-government demonstrators. Unrest seems almost certain to delay Iraq’s plans to implement its South Iraq Integrated Project, a vast water and infrastructure scheme needed for future expansion of Iraq’s oil production and export capability. Thus, there are multiple ways the current U.S.-Iran-Iraq situation could bring about a fresh disruption in oil supplies. Any escalation in ongoing violence inside Iraq constitutes one clear risk to Iraq’s oil exports. If diplomacy aimed to diffuse the situation falters and U.S.-Iraqi relations further sour, the United States could also decide to impose restrictions on Iraqi oil exports if there is evidence that Iran is a direct beneficiary of Iraqi oil trade. Finally, there are risks to the oil industries of other regional players such as Saudi Arabia, which has already suffered attacks linked to Iran. Proxy battles that involved sabotage, cyber, and bombings of Saudi and Iranian oil installations go back two years. Foreign ministers from Saudi Arabia, Egypt, Jordan, Yemen, Sudan, Somalia, Eritrea, and Djibouti met in Riyadh to discuss cooperation in counter threats to shipping along the Red Sea and Gulf of Aden. The United States and Britain are increasing their military presence to protect shipping in and around the Strait of Hormuz. Any diplomatic effort to diffuse the current U.S.-Iranian situation must carefully consider the path forward for Iraq. There is no question that the United States must take into account its broader regional interests, but any solution will need to consider Iran’s core security concerns rather than focusing heavily on its ideological bent. Iraq’s leaders must also weigh the somber reality of the country’s neighborhood. Withdrawal of U.S. advisors from Iraq won’t solve the country’s multitude of problems since there is a long line of other players in addition to Iran ready to fill any vacuum as events on the ground in Syria and Libya demonstrate. It is high time to end the repeating patterns of death and destruction that have characterized the geopolitics of oil in the Middle East. A younger generation of Iranians, Iraqis, and other youth from across the region deserve better. Hopefully, the brinksmanship of the last few days will give all parties involved the incentive to negotiate for different future in good faith.

The Trump administration’s killing of an Iranian military commander in Iraq raises questions about its legality under domestic and international law.

The killing in Baghdad of Iranian Quds Force commander Qasem Soleimani escalates an already tense contest in Iraq between U.S. and Iran-backed forces, makes the battle against the Islamic State more difficult, and is likely to feed further regional upheaval.

I have a rule of thumb on the oil price cycle: When commentators start using the word “never” we are typically at the brink of a cycle shift. For a while now, oil prices have been stuck in a range. That stasis has led to much commentary that prices will never go up again. The evidence that oil prices can never rise again came to traders from a simple concept: The all-time, worst imaginable event that could slay oil supply—a successful military attack on Saudi Arabia’s Abqaiq crude processing facility—came and went with only a brief upward whimper in the price of oil. Savvy oil commentator Nick Butler summed it up succinctly, “The events around Abqaiq not only confirmed the immediate strength of supply, but also highlighted the fact that the circumstances that could lead to a sustained price surge are very unlikely to happen.”  Now, complications surrounding the valuation of initial public offering (IPO) of shares in Saudi Arabia’s state oil firm Saudi Aramco are stimulating even more dire predictions about oil. A commentary in the Telegraph noted the Aramco IPO represents “a sobering moment for OPEC [the Organization of Petroleum Exporting Countries]” and adds that “The risk for OPEC and Russia is that the ‘lower for longer’ price stretches into the middle of the next decade. By then, electric vehicles will have reached purchase cost parity with petrol and diesel engines, and much lower life-time costs.” The article is one of many of late suggesting the oil industry is on borrowed time where oil prices have nowhere to go but down. No one is even mentioning the failed auction of offshore exploration blocks in Brazil per se, but it could be taken as yet another sign that oil companies are not in any way desperate for increasing reserves. Still, today’s statistics are not yet proof of the sunsetting of oil prices. World oil demand is not declining this year, compared to past years. Demand is up by 800,000 b/d in the first nine months of 2019, compared to the same period last year. This is less than expected a year ago, but still significant. The narrative that China’s oil demand is falling due to the trade war is also incorrect. Chinese oil demand was 12.7 million b/d in September, up from 12.4 million b/d in 2018. Indian oil demand has also made gains since last year, but at a more modest growth rate of 130,000 b/d. With world demand averaging only a more modest growth rate of 800,000 b/d, U.S. shale takes more than the entire pie, leaving no room for other producers who might have or want to have new oil fields coming online. The International Energy Agency is still projecting growth in global oil demand for 2020 to reach 1.2 million b/d. The optimistic forecast is despite the fact that economic headwinds have curtailed oil use growth in the Middle East and Latin America so far this year. Perhaps in conjunction with announcements about new oil production from giant oil fields in Norway and Guyana, oil traders have a healthy distrust of rosy suggestions that oil market surpluses will shrink. I tend to think of oil prices as cyclical, even if the cycle has been shortened by the U.S. shale boom and related oil price hedging. That is probably why I am finding it harder than usual to jump on the oil demise bandwagon and keep harping back to geopolitical events. But I also find a disconnect between the reality of electric cars and the current narrative that they have already transformed the market. Operating electric cars have amazingly hit the 7 million mark, up from almost nothing a few years ago, but that is out of a global car stock of 1.3 billion on the road today. China is not on a steady path to electrification, either. China has rhetorically indicated that down the road, it plans to ban internal combustion cars. However, this year, it lowered subsidies for electric cars and that has hurt sales. Even if global oil demand is, in fact, soon to be flattening out, as it has already in Europe, there continues to be a lot of dire geopolitical influences on supply instability out there to give pause.  Proxy wars are still raging in the Middle East. This week saw exchanges between Israel and Iranian proxies in Syria. Israeli security analysts are worried about the escalating situation, with one Israeli nuclear scientist suggesting in a major newspaper that the country shut down its nuclear power plant at Dimona as a precaution. Unrest in Iraq is another trigger point for regional conflict. Anti-government protesters briefly cut off roads to the port of Khor al-Zubair where oil exports are shipped and to the entrance of the large Rumailah oil field. Protesters from across sectarian and economic classes are demanding a change in government to redress Iranian influence, corruption, and the current system of political patronage. A recent New York Times and Intercept report recently exposed Iran’s vast influence in Iraq including special relationships with senior Iraqi officials. Iran is unlikely to submit and change its behavior towards Iraq easily given the extensive economic ties that bring billions of dollars in value to the Iranian economy and its ruling elite. Iraq provides Iran with food and other goods in exchange for Iranian natural gas and electricity trade. Iran relies increasingly on this relationship as its economy and people suffer under the Donald J. Trump Administration’s “maximum pressure” sanctions campaign. Iraqi protesters accused Iranian backed groups of employing snipers to put down the mass protests. Similarly deadly, mass protests are also taking place in Iran in the aftermath of the government’s announcement to reduce state subsidies for fuel. It is equally unclear what Russia’s entry into the Libyan war could mean for that country. Some analysts are suggesting that the Russian backed faction might eventually be tempted to disrupt a tenuous truce over control of oil distribution inside Libya. For now, markets seem inclined to discount unrest and war across the Middle East as a feature influencing the price of oil. I am inclined to keep warning that this could be a mistake. But then, that makes me seem like a whiner who can’t let go of an old way of thinking about Middle East conflicts. So I will satisfy myself by reminding everyone that “never” is a really long time when it comes to the price of oil. To date, never has not come to pass.

Iraq’s struggling economy and government corruption sparked the protests, in which hundreds have died. The governing elite appears shaky, and the stability of the country is at stake.

Al-Qaeda could benefit from the death of the Islamic State’s leader, potentially regaining its worldwide reach and influence.