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Iraqi Oil Armageddon

Written By Christian DeHaemer

Posted August 1, 2013

Iraq is falling apart.

Civil war is looming…

On Monday, 18 bombs went off in Iraq. The Washington Post reported:

The blasts on Monday — 18 in all — were the latest in a surge of bloodshed that has swept across Iraq since April, killing more than 3,000 people and worsening the already strained ties between Iraq’s Sunni minority and the Shiite-led government.

In July alone, nearly 700 people have been killed in insurgent attacks.

Al-Qaeda is back on the march since the United States pulled out of Iraq.

The pace of violence is growing fast, and it looks like a return to a civil war (or just a continuation of the fighting that has been going on in the Middle East since the Battle of Siffin in 657).

Last week, the terrorists broke into two separate prisons, freeing hundreds from Abu Ghraib — including top Al-Qaeda leaders.

This news doesn’t seem to have registered with the dominant press in this country, which, when it isn’t concerned about the farce of the New York mayoral race, is more concerned about Syria and Egypt.

Our leading diplomat, Secretary of State John Kerry, is wasting his time on the Israel/Palestinian problem, as if nothing has changed since the 1970s.

Iraq Oil

But you had better be concerned, because Iraq is a big deal.

The country has the second largest oil reserves in the world. They are currently pumping out 2.9 million barrels a day, with goals of pumping 9 million bpd by 2020.

That, as they say, is a pipe dream. It’s just not going to happen.

Instead of expanding, production has been falling over the last few months.

A bomb attack on a pipeline running from the Kirkuk oil field to Turkey has shut down for three days. It’s not the first attack, and it won’t be the last.

And keep in mind, the Kurdish region is the calmest. In the south, the aging infrastructure and lack of storage production mean oil from Rumaila declines up to 200,000 bpd at times. The country needs some $30 billion to update these facilities, but it’s not going to get it.

While some banks like Citi plan on sticking a toe into Iraq and opening an exploratory office, others with more experience are leaving.

HSBC is selling its 70% stake in Dar Es Salaam (DES), a local bank. DES’s shares have fallen 63% from the January high down to 1.30 dinars. This is well below the 6 dinars that shares went for in 2011.

HSBC wants to get out of Iraq so bad that it offered to sell its shares at one Iraqi fils a share. That comes out to one-thousandth of a dinar.

The regulatory body of Iraq wouldn’t let them, as HSBC wouldn’t properly explain why they would sell at such a discount.

It’s a real conundrum, that one… It could be because the Sunnis and Shiites are fighting hot wars in several countries, and Iran is a year away from getting the bomb.

The Saudis would love to keep Iraqi oil off the market as well as confound the Iranians any way they can.

And don’t expect the U.S. Marines to save the day… They aren’t going back.


Currently, the world oil demand is just above 93 million bpd. World oil supply is just above 91 million bpd.

West Texas Intermediate is selling at $104 as I write this; Brent Sea — what the rest of the world pays — is selling for $106.

The fall in Brent (from $120) is understandably based on a slowdown from China.

However, I have yet to figure out why WTI climbed from $85 in the midst of a Stateside oil glut…

The headlines say “expectation of U.S. expansion.” But judging by PMI data, I’d put money on skulduggery by JPM or the like.

The upshot is that the China drop is overdone.

I’m betting future supply shocks and increasing demand will drive Brent prices higher and spur on exploration in non-Middle East and North African regions.

There are two geographic areas I’m telling my readers to buy oil companies…

One is Kenya. The other is the Bakken down under, in politically stable New Zealand.

All the best,

Christian DeHaemer Signature

Christian DeHaemer

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Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.

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