Why doesn't Iraq rely on the World Bank to overcome the "dollar crisis"? An expert answers
Today, Friday (August 30, 2024), the expert in economic and financial affairs, Nabil Jabbar Al-Tamimi, commented on the possibility of the World Bank helping Iraq develop its economic and financial situation and solve the remittance crisis.
Al-Tamimi said in an interview with Baghdad Today, "The World Bank is an international banking financial institution affiliated with the United Nations, but it is subject to special management related to the influence of some countries according to their banking contributions, as its tasks are limited to investment financing for countries, providing international loans, and managing projects according to its international banking conditions."
He pointed out that "Iraq is currently working extensively with one of the World Bank institutions with the International Finance Corporation (IFC) to develop a group of sectors, including the transportation and airports sectors," explaining that "the World Bank, as an important international and financial institution and a UN institution at the same time, works with Iraq and other countries in the fields of lending and providing technical consultations, as well as providing Iraq with economic data and analyses within the limits of its work."
The expert in economic and financial affairs stressed that "it is not within the World Bank's jurisdiction to intervene in the issues facing Iraq, especially with regard to the remittance crisis, local banking failures, or weak procedures to protect funds from suspicions of money laundering and financing terrorism."
According to specialists, Iraq has more than (70) banks, approximately five of which are governmental and the remaining number are private banks, but Iraq relies heavily on financial transfers, especially with regard to the dollar, to various foreign banks, due to the failure of Iraqi private banks to arrange their legal and technical situations in the issue of financial correspondence.
Earlier, Alia Nassif, a member of the Parliamentary Integrity Committee, revealed that the Iraqi-Jordanian National Bank had obtained $3.6 billion from the currency auction during the first three months of the current year, which enabled it to obtain a profit of about 40 billion dinars. link
Challenges of Selling Iraqi Oil in Petro Dinars and the Implications for the US Dollar
The concept of selling oil in "petro dinars," or using the Iraqi dinar as the primary currency for oil transactions, presents a significant shift from the established petrodollar system. Historically, oil has been traded almost exclusively in US dollars, a practice cemented by the 1974 agreement between the United States and Saudi Arabia. This system has bolstered the dollar's status as the global reserve currency, influencing international trade and finance.
The petrodollar system has been a cornerstone of the US dollar's dominance in the global economy. By selling oil in dinars, Iraq would undermine the dollar's role in international oil trade, which could weaken its status as a reserve currency.
2. Financial Markets and Treasury Securities
Petrodollars are often recycled back into the US economy through investments in Treasury securities. Reduced demand for dollars to purchase oil could lead to fewer investments in US assets, affecting financial stability.
3. Inflation and Interest Rates
A decline in demand for dollars could lead to inflation, as the currency's value decreases. This might also result in higher interest rates as the US government could face higher borrowing costs.
Challenges for Iraq
1. Economic Diversification
Iraq's economy, heavily reliant on oil revenue, could face challenges if global oil prices fluctuate. Selling oil in dinars might not immediately address this vulnerability.
2. Political and Geopolitical Risks
Shifting to petro dinars could strain Iraq's relationships with the United States and other major oil importers accustomed to using dollars. There might be political costs and potential sanctions.
3. Currency Stability
The Iraqi dinar might not be as stable as the US dollar, posing risks to international investors. Volatility in the dinar could deter investment and trade.
4. Infrastructure and Financial Systems
Iraq's financial infrastructure might need to be strengthened to handle the increased demand for dinars in international trade.
Conclusion
The prospect of Iraq selling oil in petro dinars represents a significant challenge to the established petrodollar system. While it could potentially reduce the US dollar's dominance, it also introduces substantial risks and challenges for Iraq, including economic vulnerability, geopolitical tensions, and issues with currency stability and financial infrastructure. As the global economy evolves, the implications for both Iraq and the US dollar will continue to be closely watched.
What are the challenges of selling Iraqi oil in “petro dinars” and will the dollar falter?
After 2003, Iraq was able to significantly increase its oil production level thanks to its openness to international companies specializing in energy, through the new contracting system called licensing rounds. Production increased from three million barrels per day in 2003 to more than 4.22 million barrels in the last quarter of 2023.
Iraq's oil and gas sector is the country's lifeblood, contributing more than 95% of GDP.
Caution Caution
In addition, warnings are escalating about the impact of the decline in oil on the general budget in Iraq and the extent of its impact on increasing the budget deficit, which is estimated at the time of approving the budget at about (47) billion dollars, especially since the budget depends primarily on oil prices, at a rate exceeding (95%) as its source.
And to Basra, where its crude oil is witnessing weekly losses of $5, or 2%, as a result of the global decline in oil prices, while observers see: “The interesting thing about the latest confusing matter is the acceleration of oil prices, which have witnessed some declines, but as long as oil prices are above (70) dollars, Iraq is safe and the planned deficit is (47) billion dollars, but they confirmed that if it falls below (70) dollars, even by one dollar, this will increase the deficit by a large percentage of up to $1.2 billion if the decline continues for one year, and this will put great pressure on the budget.
The data also indicates that prices will remain at $70 and will rise again to around $80 based on the OPEC and OPEC Plus action plan, and Iraq will benefit. As for Iraq’s current weekly losses, they are due to fluctuations or declines in Asian demand, especially in India and China.
Strategic expert Alaa Al-Azzawi said: “This measure will enhance the value of the local currency, which is suffering from confusion due to the fluctuation of the dollar exchange rate in the Iraqi markets.
Al-Azzawi told the “Iraq Observer” agency that the most important thing in this procedure is selling oil in dinars. “The petro-dinar will enable the Iraqi currency to enter the global markets, as Russia did before and sold its oil in local currency.”
The strategic expert pointed out that the most important thing is that the Iraqi dinar will enter a new phase in global trade relations, and the position of the dollar may weaken within Iraq.
Where is the series of losses going?
Basra Heavy and Medium crude recorded weekly losses, with global oil prices recording losses of more than 2%. Basra Heavy crude closed in its last session up $1.8 to reach $72.47.
It recorded weekly losses of $3.25, while Basra Medium crude closed in its last session with an increase of $1.8 to reach $75.47, and it also recorded weekly losses of $3.39, or the equivalent of 3.92%, while Brent crude recorded weekly losses of 1.2%, and West Texas Intermediate crude recorded weekly losses of 2.1%.
Both crudes hit their lowest levels since early January this week, after the U.S. government sharply cut its estimate of jobs added by employers in the country this year through next March.
For his part, Al-Sudani’s financial advisor, Mazhar Muhammad Salih, said: “Any deviation between oil prices (petrodollars) and the exchange rate (petrodinars) according to international market data will be considered a cost that requires compensation by paying fewer dinars or collecting a higher dinar in the opposite case,” indicating that “international reserve currencies are foreign currencies held by central banks and global financial institutions as part of their monetary reserves.”
These currencies are used in international transactions and debt settlement between countries, and are a standard for international payments and facilitating global trade.”
“Russia suffered a lot when it priced its exported oil in rubles (petrorubles), and the ruble is a non-reserve currency, and committed to a value for the ruble that was initially denominated in gold to ensure the stability of oil revenues. Here, the petroruble underwent two asset cycles at the same time (which complicated the scene of selling oil in local currency and stabilizing the value of the petroruble),” Saleh said.
According to Saleh, international market data indicate that “the first cycle: is the result of the impact of what is called the gold asset cycle and its impact on the value of the (petroruble) or the local currency denominated in exported oil.
The second, and the talk is in favor of: it is the oil assets cycle, and its effect on the value of a barrel of oil outside the global price and the reflection of that on oil revenues priced in that currency, and that “the two cycles are asset cycles that are linked and contradict each other at the same time on the value (of the currency priced in the exported oil, such as the petroruble), which made pricing Russian oil in rubles as a local currency and according to the data of the global oil market a very complex issue.”
He pointed out that “the principle of using the dinar as a local currency in international oil exchanges (petrodinar) is not without many challenges, which is why those potential challenges must be carefully considered, especially the issue of the flexibility or stability of the value of the (petrodinar) itself to change and fluctuation, especially since we in the oil market are not price makers in it, but rather price takers.”
He noted that “the global oil market will control the fluctuation of the local currency (petrodinar), in addition to the importance of international recognition of it, and the financial infrastructure necessary to support such operations from (petrodinar).
“In other words, the strategy of basing the value of the currency on oil exports directly may make the value of the local currency vulnerable to fluctuations in the global market,” he continued. “The proposal to sell oil in dinars as a local currency must take into account an important theory in global trade called the Law of One Price, which is an economic concept that assumes that the same commodity should be sold at the same prices in all markets when the price is expressed in the same currency.”
Explaining: “This is on condition that there are no transportation costs or trade barriers such as customs tariffs and others, as the single price theory here is the basis for many economic and commercial models and the theory is based on the assumption that markets operate efficiently, according to the official agency.”
A new collapse and oil prices fell by about 2 percent today, due to fears of the impact of the slowdown in economic growth in the United States and China on energy demand, especially after prices rose by more than 7 percent during the previous three days.
Brent crude futures fell 1.6 percent, or $1.31, to $80.12 a barrel, while U.S. West Texas Intermediate crude fell 1.7 percent, or $1.30, to $76.12.
Prices have risen sharply in the past few days as analysts point to a potential shutdown of Libya's Nagat fields, which could limit the OPEC member's output of around 1.2 million barrels per day.
Analysts pointed to tensions in the Middle East following a large-scale exchange of fire between Israel and Iran-allied Hezbollah in Lebanon in recent days, according to Reuters.
Crude oil prices have recently been affected by growing expectations that the Federal Reserve will cut interest rates next month, which could boost economic growth and thus demand for oil.
U.S. data is expected to show that energy companies last week pulled crude oil from inventories for the eighth week out of nine.
Analysts expected US energy companies to withdraw about three million barrels of crude from inventories during the week ending August 23.
The American Petroleum Institute is scheduled to release weekly U.S. oil inventory data today, as is the U.S. Energy Information Administration. link
MarkZ Disclaimer: Please consider everything on this call as my opinion. People who take notes do not catch everything and its best to watch the video so that you get everything in context. Be sure to consult a professional for any financial decisions
Member: Happy Friday everyone.
Member: Well tomorrow is the last day of the week and the last day of August…..hope that is significant for us
Member: And today is the Friday before a holiday weekend. A 3 day weekend.
Member: We have often heard that the RV is best to go o a 3 day weekend . But the whole world does not have a holiday weekend?
MZ: I have been told a 3 day weekend is easier to execute. In an ideal world they would flip the rates on a Saturday Night or Sunday morning and this would give them more time to prepare banking . It would just be easier to do it on a 3 day weekend for the biggest economies in the world.. At least that is how it was described to me.
Member: Is Redemption staff working this weekend?
MZ: Very quiet on the bond side and the group side, but the anticipation for this weekend is at a feverish pitch right now!! We will see what happens. We should know by midday on Sunday.
Member: Quiet is a good thing I think...
MZ: We are also getting inundated with a lot of fake news. This is to be expected.
Member: Can someone please remove the wheels from the RV goal posts ?
MZ: “ The commodity comeback-Secular bull just getting started” This is how it works when you are resetting from fiat. They are talking about a rise in commodities. Commodities are starting to rule the day. People are running to commodities…running from paper…they want something solid. This is how history has shown us over and over. We are watching it play out, but I admit it’s a little slower than I expected.
MZ: On August 28th- “Federal Reserve board Announces final individual capital requirements for all large banks effective on October 1st” That is Oct 1st of this year. They are getting tough on makng sure banks are secure. The minimum capital requirement is the same for each bank. 4.5% minimum capital for what loans they have out there. In other words. 95.5 % could be total BS.
MZ: The minimum stress capital buffer requirement…..the funds that banks can get their hands on quickly if there is a run on the banks is 2.5 %. So if there is a run on the banks….do you think only 2.5% of people are going to want their money out? That is silly….A lot more than that is going to want to touch and hold their cash …and know that it is safe. Most banks do not have these minimum requirements right now.
Member: If bank runs happen…….the PTB better be ready for huge riots, torchs and pitchforks….. and maybe some lynchings………The People of the world will rise up…imo
Member: Maybe that is what we need to get them to release the RV…..we need something.
Member: October 1st is the beginning of the New Fiscal Year!!
Member: Chase said yesterday all there banks are redeeming, you have to come in for the rate
Member: Will Iranian Rial be in the first basket?
MZ: There is a lot of back and forth on that. But right now- as of this morning I hear it is in it.
Member: Any lower denoms released in Iraq yet?
MZ: Not yet…But there are certainly preparations for lower denoms to be released on the streets.
Member: From what others are saying, all currency needs to go at once. No second baskets…
MZ: I don’t consider it as a second basket. I am told the majority of currencies will go initially …while others will have to go individually as their nations are prepared/ready. Some call that a second basket…..I don’t.
Member: US Debt Clock has shown the number of millionaires has grown by several thousand a day for the past couple of days!!
Member: Will we see an RV this year?
Member: Just a thought …911 in 2001 was to be the day this RV/Nesara/Gesara was to go, was stopped and stopped the world. September 11 is soon to be upon us. What do y’all think of this day??
Member: I don’t think the rv will go until the new US Treasury Notes backed by gold are out and being used.
Member: Maybe it all happens at the same time….
Member: IMO- the more that you pray the RV in, the quicker it will happen
Member: I am thankful that the Rv is happening this weekend -so by faith I call this thing forth
Member: hoping for all that can see this will be filled with joy knowing we will soon make a difference in the world
Member: Mark Z and Mark C are both AWESOME and thanks to both of you for your commitment to keeping us informed with the latest INTEL. God Bless both of YOU.
