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From petrodollar to petroyuan: Iraq between two funds

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From petrodollar to petroyuan: Iraq between two funds

by Jafar Mohsen Hadi - 2021-07-06 210

The petrodollar is defined as the surplus of the dollar oil revenues of the oil-producing countries, that is, what is left of the oil sales funds after paying the costs of production.

The Ministry of Foreign Affairs later - to link the dollar with oil to maintain its market value, thus strengthening America's position as an unrivaled economic power.

The reason for the rise in oil prices at that time is the accumulation of funds in the producing countries;

Therefore, this project was the most important guarantor of the circulation of these sums from the producing countries to the consuming countries later, by pumping these funds into Western banks and markets once again “reversing the economic cycle.”

The development of the project was the core core of what is now known as “sovereign funds” through which Oil and gas producing countries invest their surplus revenues in the American and Western markets.

The most important of these funds are: the Qatar Investment Authority, the Saudi Investment Fund, and the Abu Dhabi Investment Authority.

Iraqi petrodollars

It is a legal article “completely different from the international concept of the term and similar to it in the name. Its purpose was to finance the oil governorates with continuous funds and outside the budget allocations to support their development projects.”

It was included in the budget in 2010, according to which the Ministry of Finance commits to allocate $5 for each barrel produced or refined in the oil governorates.,

later it was adjusted to 5% of the price of a barrel, to be paid to the oil-producing governorates instead of $5.

This law turned into a means of attacking successive governments due to the reluctance of the Ministry of Finance to implement it under the pretext of the high rate of financial deficit and the lack of revenues from oil, in addition to the costs of the war on terrorism, which exhausted the financial and economic structure of Iraq;

Thus, the Iraqi petrodollar project has turned into a major obstacle to the wheel of age in those governorates - the southern ones in particular - through which it was intended to go, as the debt of the Ministry of Finance to those governorates until 2019 amounted to nearly 25 trillion Iraqi dinars, 15% of which is to the governorate Basra alone, which produces approximately 85% of Iraq's oil.

In order to avoid this repeated scenario, the House of Representatives introduced an amendment to this law in the current year’s budget (2021),

as MP Sadiq Al-Sulaiti, a member of the Parliament’s Energy Committee, announced to INA that “the 2021 budget established a new mechanism that differs from its predecessor, and this mechanism was imposed on the Ministry of Finance to establish Special funds for petrodollars” [1] .

China: the new variable in the Iraqi petrodollar

The rate of trade exchange between Iraq and China reached 30 billion dollars in 2020, and both Iraq and Saudi Arabia are competing for the first place of crude oil exporters to China within the “OPEC” organization.

In addition, there is a tangible desire for Chinese companies to work inside Iraq, as the Chinese ambassador in Baghdad said, “All Chinese companies in Iraq maintained their business during the Corona virus crisis”[2].

And the ambassador, in a statement carried by “Anatolia” agency, announced Beijing’s readiness to provide military support to Baghdad in the event the Americans withdrew,

and with all the pressures that Iraq was subjected to to reduce the momentum of the relationship with China, the Iraqi parliament had succeeded in including in the 2021 budget paragraphs of the Chinese agreement, the most important of which is a construction project “1000 schools” with Chinese companies In addition to financing Nasiriyah Airport and other projects,

it is important that the experience of US-Chinese friction on Iraqi soil constitute the beginning of drawing a balanced and reasonable course for the ruling class in Baghdad that ensures the continuation of political, security and development support for the country and keeps it away from entering into a conflict

This battle, which according to the outcomes of the G21 summit, the conflict between the Europeans and the Chinese is destined to escalate at a higher rate than before.

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Jafar Mohsen Hadi
Engineer in the Iraqi Ministry of Oil, South Refineries Company since 2014, holds a Bachelor’s degree in Chemical Engineering from Basra University - College of Engineering, holds a diploma in Refining Department from Basra Oil Institute, writer and editor in the field of oil and gas.

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