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Update No: 086 - (27/05/10)

China’s oil
So far the Iraqi economy has been spared the worst of the world economic crisis. GDP growth is predicted by most analysts to be around 7% this year and near 8% next. Oil production is now expected to increase moderately next year, from 2.6 million bpd to 2.9 million. In an effort to stimulate growth, the Iraqi Central Bank has recently cut the interest rate from 7% to 6%. Expectations of future growth are beginning to stimulate growth in the banking sector, with foreign investors cautiously coming in. Investors from Britain, Lebanon, Iran and the Gulf have all acquired, or are preparing to acquire interests the sector. In the meanwhile what is really starting to grow is the oil sector. The expansion of operations at the large (2.6 billion barrels) Missan field has just been awarded to a consortium led by the China National Offshore Oil Corp., partnered with Turkish TPAO. With this one, Chinese companies have now won four contracts in the Iraqi oil sector, prompting many observers to foresee the rise of China to the position of dominant partner in the Iraqi oil sector.

Long negotiations expected on cabinet formation
On the political front the situation remains complex after the March parliamentary elections. The attempt to invalidate the result and gain a few extra seats to Maliki’s State of Law coalition has failed and his rival Allawi has now started negotiations over the formation of a new cabinet. Allawi has not been successful, leading to speculations that Maliki might still be able to form a coalition around himself. Undoubtedly the State of Law and the Shiite Iraqi national Alliance are talking to each other to form a coalition government, but they are four seats short of a majority. But in a surprise move Muqtada As-Sadr announced that he would not block a move by Maliki to stay as Prime Minister, despite an internal Sadrist referendum, which rejected Maliki. In exchange he is asking the release of 2,000 Sadrist prisoners, which Maliki seems inclined to concede. While the coalition between the two alliances seems very likely now, the problem is to find a third, junior coalition partner to reach a majority. Talks with the Kurds are ongoing. A solution which returned the country to a predominantly Shiite government is certainly what Iran wants, but the Saudis have been expressed their dismay at the possibility of a confirmation of Maliki and accuse Iran of interference. A kind of national coalition seems to be the only way to guarantee stability; Allawi’s alliance, mostly composed of Sunni Arabs, would have to be included to appease the Saudis. Washington is also strongly pushing in the direction of a national coalition representing all the main ethnic and sectarian groups, but any negotiations leading in this direction are expected to last several months. Maliki’s advisers suggest that he would also like an inclusive government. However so far (two months from the elections) not even a single meeting between the leaders of the main blocs has taken place, suggesting that it will be a long process indeed. The four blocs are throwing on the table maximum demands, in the expectation of tough negotiations. A compromise will have to be reached somehow. Maliki hopes than an alliance with the other Shiite bloc, the Iraqi National Alliance, will boost his negotiating power and allow him to impose his own candidacy as Prime Minister, definitely defeating Allawi. The question is how effective an all inclusive government emerging out of drawn out negotiations and compromises will be.



 

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