Weapon of Mass Destruction: Dollar
When God made Hell, he did not find it bad enough, so he made Mesopotamia—and added flies.
Arab Proverb
Mesopotamia = Land Between Rivers, the title is a little play on words. You’ll know it as Iraq. It’s always been a place of unpredictability, causing shivers of fear to those who live there. It’s amazing blessing from oil has also conjured up a cursing of unimaginable catastrophes.
I could easily eat up your evening with a history report of this region. There’s as much information held here as the Roman Empire or Ancient Greece, so I will spare your eyes the reading but trust me when I say that the place is no stranger to mayhem.
But, things seem, pretty normal economically…
What’s going on?
Iraq, believe it or not, has been pretty stable as of the last decade, especially as of late.
About a year ago, Fitch estimated that the debt of Iraq’s government as a % of GDP was forecast to fall to about 47% (2022) from 66% in 2021. They underestimated however as the Debt to GDP fell to 36.70% (currently sits at 43.3%). This mark is the biggest fall of any government in the Middle East & North Africa.
Fitch also forecasted Iraq will record a 17% of GDP fiscal surplus (current account) in 2022 (which is currently 16.3%) and predicted they would pay down debts. The government budget has run a surplus of 6.4% in 2022 as well and military expenditures have been on the decline.
This year’s budget is Iraq’s largest at 198.9 trillion Iraqi dinars, at $153B based on the official exchange rate. The 2024 and 2025 budgets will be the same unless the cabinet requests any changes & are approved by parliament.
Perhaps to assist my case that Iraq has greatly improved since the war is the amount of investment in the region in their oil fields. While FDI inflows remain negative, Lloyd Bank Trade writes, “Nevertheless, hydrocarbons continue to draw in foreign companies, and the majority of FDI goes to the oil industry”
As of July 2023, Saudi Arabia and United Arab Emirates have reached an agreement to invest $3,000,000,000 USD, each into Iraq. A month prior, the Prime Minister of Iraq, Mohammed Shia Al-Sudani had quoted “Iraq has regained its normal position and role in the region…the country’s growing stability makes it a promising environment [for investment projects]”.
This comes at a time when Iraq continues to seek financing to fuel it’s postwar recovery.
Iraq normally receives much of its investment from Iran (Iran supplies 40% of Iraq’s energy consumption per year), however as demand has picked up in Iraq, Iran cannot meet the supply and Iraq has opened their arms to other investors in the region, especially amid uncertainty in the region.
I recall finding these trends and then noticing that a frontier fund already launched an investment fund just investing in Iraq (Asian Frontier Capital). So, On The Ball is not alone in questioning the potential emergence of this country.
But, they’re not free and clear just yet…
USA can’t help itself
Since the Authorization for Use of Military Force (AUMF) in 2002, the US have gotten in fights with regime sympathesizers, Shiite militias, Al Qaeda and many others in Iraq territory. In 2008, US President George Bush said that the Hussein regime was the primary threat posed by Iraq but…Congress recognized it was not the only threat. The Obama administration in 2014 utilized the AUMF targeting airstrikes in Northern Iraq against the Islamic State. The Trump administration utilized the 2002 AUMF as legal justisification for the airstrike that killed Qassem Soleimani (commander of paramilitary Quds Force) by saying “their expansion would continue to undermine Iraq stability and threaten US personnel”.
Today, there are still approximately 2,000 U.S. troops stationed in Iraq today who focus on training and advising Iraq’s security forces. The US had changed their policy from invader to occupying authority. The claimed goal is for Iraqi forces to operate autonomously, but for now, the U.S. military still conducts campaigns against the Islamic State (also known as ISIS) in Iraq and Syria in cooperation with local partners—including 313 such operations in 2022 alone.
Under a new U.S.-Iraqi agreement, technical support and advising will likely continue, with greater emphasis on eventual independence for the Iraqi military (again, as claimed)—particularly elite units. As of late, Iraqi and US officials have been meeting to discuss defence policy & cooperation quite readily.
At the same time, US Treasury officials have been less cooperative…
“Iraq’s central bank must address continued risks of the misuse of dollars at Iraqi commercial banks to avoid new punitive measures targeting the country’s financial sector, citing fraud, money laundering and Iran sanctions evasion”, quotes Treasury officials. Already this year, the US barred 14 Iraqi banks from conducting dollar transactions as part of a wider crackdown on the illicit use of dollars (for me; not for thee).
As a consequence, Iraq is heavily reliant on Washington’s goodwill to ensure oil revenues and finances do not face US censure as they have over $100B in US reserves.
Iraq has more than 70 private banks, a relatively new feature in a sector that was almost entirely controlled by the state until Saddam Hussein was toppled in the US invasion of 2003. Of those, just under a third are now on US blacklists.
However, Iraq may be learning their lesson, or the USA never learn theirs
“The Iraqi government will ban all cash withdrawals and transactions in the US dollar as of 1 January 2024, according to Mazen Ahmed, director-general of investment and remittances at the Iraqi Central Bank (CBI)” as per The Cradle.co
This came immediately after it was reported that US officials last month refused to approve the transfer of an extra $1 billion in cash to Iraq from the country’s oil sales proceeds. I have friends willing to beat me up over $20 bucks, I can understand this over $1,000,000,000.00 USD
Ahmed was showing a strict take against the US dollar. “Dollars deposited after this point will only be available for withdrawal at an exchange rate of 1320 Iraqi Dinars”. The move is said to be aimed to curb theft from the $10B air trafficked to Iraq from the Federal Reserve each year (bet you didn’t know that, Americans).
The position from Washington is control, control, control–> “sending a large extra shipment is contrary to Washington’s goal of reducing Iraq’s use of US banknotes in favor of more easily traceable electronic transactions”. So the Americans want to send over dollars for oil, but only if they can monitor the use of those dollars thereafter–if not, ‘Hey, free oil everyone!!’
Additionally, this may have explained Iraq’s plans to increase Iraq’s oil production and then to send that extra output to China, as per a cabinet meeting. This would raise the export number to 150,000 barrels of oil per day. This is in line with recent Iraq-China Framework Agreement; a 25-year trade alliance to support China’s belt-and-road initiative.
Closing Thoughts
Iraq is a very strategic place for the superpowers of the world. It’s in a perfect position to bridge both to Europe but also to Eurasia. If a superpower is able to normalize operations and restrict corruption to a manageable level it could easily become the world’s top producer of crude oil within a relatively short time. Perhaps most important is Iran’s enduring influence by which it operates. Iran forms the core of the spiritual, political, military, and cultural strength for Iraq. With Iran forming alliances with China, Saudi Arabia, UAE, Russia and others– you’re beginning to see a real powerhouse of resources develop. Enter the USA.
The USA wishes to retain it’s political hegemony and the alliance of these players with this much energy resource is a clear threat to this world dominance. On a country-level the US is still in bully mode and Iraq is trying to survive the best they can. Either Iraq is trying to play nice to keep the dollar train moving, or to buy time to detach from this tyranny [and onto someone else’s tyranny]. They talk about Iraqi independence cause it sounds nice for the headlines–but the reality is the US only wants independence in so far it benefits their global status.
This military presence is simply to stay long enough to put pressure on Iran and be able to use Iraq as proxy if needs be (Find out where I believe World War 3 will begin HERE). Am I being dramatic? No. Legislation authorizing the 2003 war is still on the books—and still open-ended (as a matter of fact, the Korean War had never ended either). Areas of Iraq and Iran have been long opponents of each other, with a stranglehold on US dollars & how they’re used–it’s the ideal proxy for the USA.
The US dollar is further evidence that the US are still largely in control of the oil rich nation. On the flip side, what if those $100B in reserves were held in gold? In Dirham? In Riyals? In Rubles? Or put another way–why would any other resource rich nation want to hold US dollars by witnessing the endless threats and punishment coming from Washington? Do what we want or we’ll freeze and seize.
*This decade is going to give us so much to write about with respect to the US dollar, gold and the Middle East. Having said that, we’d love to hear from you & market your work*
I have to applaud Iraq for turning hell into a somewhat functional place. I heartedly hope that they can be on a path of stability and reinvest those oil profits into other aspects of their economy. The Saudis and Emiratis are not dumb, they are not throwing that money away for the heck of it.
In the short to medium-term it’s hard to see them break free to be truly independent because of the oil & dollar connection; if (a big IF since the powers at be are pushing for war) they are able to walk a fine line of neutrality between the Gulf states, US/Israel and Iran than things could be interesting; and long term, this is a further reminder that the realWeapon of Mass Destruction known as the US dollar, is bound to run out of ammunition.
What do you think? Can Iraq keep these oil profits pumping and rebuild? Or will foreign powers seek and destroy? Is the USA forcing resource rich countries away from the dollar? Is this a crisis investing opportunity?
Update!! It seems increasingly apparent that Iraq will be involved in yet again another proxy war between the USA and Iran, with both having fighting forces present.
#StayOnTheBall
