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Boom Time in Iraq

Posted May 22, 2017

Iraq is undervalued, booming, and about to win the war against ISIS.  Here is the bullish scenario for investors.

Iraq is considered to have the world’s second largest proven oil reserves with 140 billion barrels.  That said, it could be much higher as much of the data is 2-D seismic and predates the 2001 Gulf War.

Right now, Iraq's assets are severely undervalued for two reasons: the low oil price and the war with ISIS.  Both of those factors are changing.

The war against ISIS is winding down. 

The Atlantic reports: "The Scramble for Post-ISIS Syria Has Officially Begun."

The Guardian reports: "Isis Faces Exodus of Foreign Fighters as its ‘Caliphate’ Crumbles."

Business Insider reports: "ISIS is losing ground."

Military.com has reported that ISIS has lost 55,000 square kilometers of territory since its peak in 2014.  ISIS is losing on all fronts and as of last week controls less than 10% of Mosul.

The current goal of the U.S. military has switched from regaining territory to destroying ISIS fighters before they escape back to their home countries. 

The end result of this is that some three million people are returning to their homes in liberated cities.

Oil Production Up

Despite all of the violence, Iraqi oil production continues to climb and is now more than double Gulf War output.

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It should be noted that oil accounts for 90% of the government revenue.  But Iraq as part of OPEC has agreed to cut oil production by 210,000 barrels a day to 4.351 million until the end of the year. 

According to the Iraq Business News there are a number of international oil companies in Iraq including BP, CNOOC, China National Petroleum Corp, Dragon Oil, Egyptian General Petroleum, Eni, ExxonMobil, Gazprom, Inpex, Shell, Total, and Turkey Petrolleri.

Iraqi Kurdistan has about five companies listed outside Iraq. These include DNO ASA (DNO: Oslo) and Genel Energy Plc, listed in the UK (GENL.L)

A smaller company, Kuwait Energy, is seeking a London IPO in an attempt to raise $150 million.  The company produces 27,000 barrels a day from its holdings in Southern Iraq.

Booming Stock Market

The only reason to play risky frontier markets like Iraq is because you can get oversized returns that are not correlated with the U.S. markets. 

Iraq has a stock market that was set up by the U.S. and is based on the NYSE.  The ISX has over 80 companies and they are rocking.

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Iraq is the fastest growing country in the Middle East.  Its GDP grew 11% last year.  Its debt is rated stable at “B”.  Inflation is low at 2.2% but expected to go up this year.  Its currency, the Dinar, is steady and pegged to a basket of other currencies.

If you want to invest there's an AFC Iraq fund, which has performed poorly over the past five years but has bottomed and put in a higher high. 

AFC Iraq Fund

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The Iraq Fund is loaded with banks (58%) which could benefit as the war against ISIS is won and new direct investment begins. The private banking sector is underdeveloped in Iraq and could see substantial growth.

All in all, Iraq offers a very compelling growth story as a young and attractively valued market with significant room to grow.  The economy has been held back by 35 years of wars, sanctions, and civil strife. 

That said, post-war countries do very well.  Sri Lanka, for example, saw a rally of more than 250% in the 18 months following its civil war.  Indonesia, Colombia, and Vietnam all did extremely well post-war.

From a macroeconomic perspective, the country has a large, young, and rapidly growing population estimated at 35.9 million.  Income levels will continue to increase as foreign investment in the oil industry and higher exports support domestic consumption.

I am currently doing my due diligence at the Iraq Oil Conference in London.  I will let you know what I find next week.  If you are interested in Iraq or other frontier investments, join me and others at Crisis & Opportunity.

All the best,

Christian DeHaemer Signature

Christian DeHaemer

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Since 1995, Christian DeHaemer has specialized in frontier market opportunities. He has traveled extensively and invested in places as varied as Cuba, Mongolia, and Kenya. Chris believes the best way to make money is to get there first with the most. Christian is the founder of Crisis & Opportunity and Managing Director of Wealth Daily. He is also a contributor for Energy & Capital. For more on Christian, see his editor's page.

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