Islamic State (ISIS or ISIL) militants in the Iraqi city of Mosul are manipulating the exchange rate between US dollars and Iraqi dinars as the US-led anti-ISIS coalition attacks the group’s finances.
Air strikes have reduced Islamic State’s ability to extract, refine, and transport oil. Since October the coalition says it has destroyed at least 10 “cash collection points” estimated to contain hundreds of millions of dollars. Yet ISIS appears to have adapted to these setbacks in Mosul by introducing a new revenue stream. It earns profits of up to 20 percent under preferential currency rates it imposed last month that strengthen the dollar when exchanged for smaller denominations of dinars, currency traders in Mosul said. ISIS “sells [basic commodities] to traders in dollars, but it pays salaries in small denominations of dinars,” said an exchange bureau employee in Mosul. It was not possible to determine how much money ISIS is making by controlling the currency market. It was also unclear if these practices extend beyond Mosul to other territories in Iraq and Syria. [Reuters, 2/22/2016]
Iraqi Oil Minister Adel Abdel Mahdi said Monday that development costs for foreign oil companies had been revised down to just over $9 billion in 2016 from $23 billion. Abdel Mahdi said most foreign oil companies had approved the revised costs and that it would not affect production and development plans. “In 2016, [oil] companies estimated costs at $23 billion but we entered into complex negotiations . . . and were able to reduce them to just over $9 billion whilst preserving production and development plans,” Abdel Mahdi said, adding that around $13.6 billion had been paid to firms in 2015 and $13.1 billion the previous year. Earlier on Monday, he said Iraq plans to increase oil output to more than 7 million barrels per day over the next five years. He also said Iraq would use all of its gas production to supply the electricity grid and industry, requiring investments of $300 billion over the next 15 years. [Reuters, 2/22/2016]
Egypt has lowered its economic growth forecast for the current fiscal year to 4 to 4.25, down from 5 percent, Finance Minister Hany Kadry Dimian said. The downward growth revision was attributed to a decline in tourism following the downing of a Russian plane in October. “Tourism is one of the major sectors, not just as a driver of growth and one of the biggest sources of current-account receipts but because it has a higher multiplier impact on other” industries, Dimian said. Speaking on assistance from Gulf countries, Dimian said Gulf aid has shifted from grants to investments. While they still give Egypt credit facilities for oil products, “what we are focusing on now is how to foster direct investments from the Gulf states,” he said. Dimian added that the government plans to proceed with its economic reform program, which involves reforming the state budget and tackling a foreign currency shortage. He said the government hopes to tap the international bond market before the end of the fiscal year in June, market conditions permitting. [Bloomberg, Ahram Online, 2/22/2016]
Turkey’s central bank left its benchmark interest rate unchanged at 7.5 percent for the 12th month in a row on Tuesday, a move that is likely to heighten concerns about the bank’s reluctance to tackle inflation head-on. “Taking into account inflation expectations, pricing behavior and the course of other factors affecting inflation, the tight monetary policy stance will be maintained,” the bank said in a statement. The bank has refrained from adjusting rates even as rising food costs and a weakening currency have sent inflation to its highest level in more than a year. Deputy Prime Minister Mehmet Simsek has said that inflation, now at more than 9.5 percent, could seriously threaten economic growth. President Tayyip Erdogan has repeatedly railed against high interest rates. “Whoever defends hiking interest rates is the enemy of investment and employment in this country,” he said. [Reuters, WSJ, Hurriyet, 2/23/2016]
Inflation in Saudi Arabia accelerated the most in more than three years in January after government subsidy cuts drove up transportation and commodity prices. Consumer prices rose an annual 4.3 percent, up from 2.3 percent in December, the General Authority for Statistics said. The surge in inflation “was almost entirely due to the subsidy cuts that were announced alongside the budget,” Middle East economist at Capital Economics Jason Tuvey said. “This goes to underline that the government has taken a bold approach to fiscal consolidation and reinforces our view that the economy is likely to slow sharply this year.” Transportation prices in January went up 12.6 percent from a year earlier, while housing, water, fuel and electricity costs increased 8.3 percent, the statistics authority said. Health care costs increased by 5.5 percent. [Bloomberg, 2/23/2016]
Also of interest
Saudi Arabia sells floating-rate bond | Bloomberg
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Nigerian President Buhari in Saudi Arabia for oil talks | AFP
Bahrain opens books through a bond re-tap | Reuters
Bahrain central bank chief says to keep currency peg | Reuters
OPEC sees further steps to limit production if freeze holds | Reuters
GCC states in agreement on 5 percent VAT | Gulf News
Iraq oil pipeline to Turkey halted until at least February 29 | Reuters
Egypt’s central bank widens exceptions on import restrictions | Ahram Online
Egypt launches EGP 5 billion program for medium sized enterprises | Ahram Online, DNE
World Bank says Egypt’s electricity consumption very high | Aswat Masriya
Egypt’s Midor signs $1.2 billion loan agreement | Reuters
UN says Libya could soon run out of medicine | Reuters
Libya agrees to freeze current oil output | Libya Monitor (subscription)
EU appeals court ruling that partly annulled Morocco trade deal | Reuters
Islamic State rigs currency rates in Mosul to prop up finances
Islamic State (ISIS or ISIL) militants in the Iraqi city of Mosul are manipulating the exchange rate between US dollars and Iraqi dinars as the US-led anti-ISIS coalition attacks the group’s finances. Air strikes have reduced Islamic State’s ability to extract, refine, and transport oil. Since October the coalition says it has destroyed at least 10 “cash collection points” estimated to contain hundreds of millions of dollars. Yet ISIS appears to have adapted to these setbacks in Mosul by introducing a new revenue stream. It earns profits of up to 20 percent under preferential currency rates it imposed last month that strengthen the dollar when exchanged for smaller denominations of dinars, currency traders in Mosul said. ISIS “sells [basic commodities] to traders in dollars, but it pays salaries in small denominations of dinars,” said an exchange bureau employee in Mosul. It was not possible to determine how much money ISIS is making by controlling the currency market. It was also unclear if these practices extend beyond Mosul to other territories in Iraq and Syria. [Reuters, 2/22/2016]
Iraq cuts 2016 development costs for foreign oil companies
Iraqi Oil Minister Adel Abdel Mahdi said Monday that development costs for foreign oil companies had been revised down to just over $9 billion in 2016 from $23 billion. Abdel Mahdi said most foreign oil companies had approved the revised costs and that it would not affect production and development plans. “In 2016, [oil] companies estimated costs at $23 billion but we entered into complex negotiations . . . and were able to reduce them to just over $9 billion whilst preserving production and development plans,” Abdel Mahdi said, adding that around $13.6 billion had been paid to firms in 2015 and $13.1 billion the previous year. Earlier on Monday, he said Iraq plans to increase oil output to more than 7 million barrels per day over the next five years. He also said Iraq would use all of its gas production to supply the electricity grid and industry, requiring investments of $300 billion over the next 15 years. [Reuters, 2/22/2016]
Egypt cuts economic growth forecast
Egypt has lowered its economic growth forecast for the current fiscal year to 4 to 4.25, down from 5 percent, Finance Minister Hany Kadry Dimian said. The downward growth revision was attributed to a decline in tourism following the downing of a Russian plane in October. “Tourism is one of the major sectors, not just as a driver of growth and one of the biggest sources of current-account receipts but because it has a higher multiplier impact on other” industries, Dimian said. Speaking on assistance from Gulf countries, Dimian said Gulf aid has shifted from grants to investments. While they still give Egypt credit facilities for oil products, “what we are focusing on now is how to foster direct investments from the Gulf states,” he said. Dimian added that the government plans to proceed with its economic reform program, which involves reforming the state budget and tackling a foreign currency shortage. He said the government hopes to tap the international bond market before the end of the fiscal year in June, market conditions permitting. [Bloomberg, Ahram Online, 2/22/2016]
Turkey’s central bank leaves interest rates unchanged
Turkey’s central bank left its benchmark interest rate unchanged at 7.5 percent for the 12th month in a row on Tuesday, a move that is likely to heighten concerns about the bank’s reluctance to tackle inflation head-on. “Taking into account inflation expectations, pricing behavior and the course of other factors affecting inflation, the tight monetary policy stance will be maintained,” the bank said in a statement. The bank has refrained from adjusting rates even as rising food costs and a weakening currency have sent inflation to its highest level in more than a year. Deputy Prime Minister Mehmet Simsek has said that inflation, now at more than 9.5 percent, could seriously threaten economic growth. President Tayyip Erdogan has repeatedly railed against high interest rates. “Whoever defends hiking interest rates is the enemy of investment and employment in this country,” he said. [Reuters, WSJ, Hurriyet, 2/23/2016]
Saudi inflation accelerates after subsidy cuts
Inflation in Saudi Arabia accelerated the most in more than three years in January after government subsidy cuts drove up transportation and commodity prices. Consumer prices rose an annual 4.3 percent, up from 2.3 percent in December, the General Authority for Statistics said. The surge in inflation “was almost entirely due to the subsidy cuts that were announced alongside the budget,” Middle East economist at Capital Economics Jason Tuvey said. “This goes to underline that the government has taken a bold approach to fiscal consolidation and reinforces our view that the economy is likely to slow sharply this year.” Transportation prices in January went up 12.6 percent from a year earlier, while housing, water, fuel and electricity costs increased 8.3 percent, the statistics authority said. Health care costs increased by 5.5 percent. [Bloomberg, 2/23/2016]
Also of interest
Saudi Arabia sells floating-rate bond | Bloomberg
Saudi says it has enough wheat to last more than six months | Reuters
Nigerian President Buhari in Saudi Arabia for oil talks | AFP
Bahrain opens books through a bond re-tap | Reuters
Bahrain central bank chief says to keep currency peg | Reuters
OPEC sees further steps to limit production if freeze holds | Reuters
GCC states in agreement on 5 percent VAT | Gulf News
Iraq oil pipeline to Turkey halted until at least February 29 | Reuters
Egypt’s central bank widens exceptions on import restrictions | Ahram Online
Egypt launches EGP 5 billion program for medium sized enterprises | Ahram Online, DNE
World Bank says Egypt’s electricity consumption very high | Aswat Masriya
Egypt’s Midor signs $1.2 billion loan agreement | Reuters
UN says Libya could soon run out of medicine | Reuters
Libya agrees to freeze current oil output | Libya Monitor (subscription)
EU appeals court ruling that partly annulled Morocco trade deal | Reuters