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Iraqi Oil Economy

Citigroup (NYSE: C) Bets on Iraq

By Swagato Chakravorty
Monday, July 1st, 2013

You could see this in a somewhat cynical light, or you could see the opportunity in it. Either way, Citigroup Inc. (NYSE: C) is moving ahead with plans to set up shop in Iraq.

Following the long-winded and controversial U.S. warfare in that country, Iraq is now looking at significant investment expenses—to the tune of some $1 trillion—and it seems Citi wants to be part of that. This forthcoming Baghdad office will be the first by an American bank over there.

iraq oilValueWalk reports that, according to Citi, the nation’s upcoming investments in rebuilding infrastructure and developing an indigenous oil sector could prove lucrative and establish a sound base for future growth at a rapid clip.

Citigroup is the third-largest U.S. lender based on assets. The company’s first Iraq office is expected to be in Baghdad, Bloomberg reports, with more projected to open up in other areas of the country.

Interestingly, the move comes as Citi is scaling back on its international expansion into places like Turkey, Pakistan, and Uruguay; clearly, Citi has chosen instead to focus on Iraq’s future growth.

From Bloomberg, quoting Mayank Malik, Citi’s chief executive officer for Jordan, Iraq, Syria, and the Palestinian territories:

“Iraq is a giant that’s waking up and the opportunities are immense,” Malik said from Amman, Jordan. “The most significant opportunities are twofold -- oil revenue generation and infrastructure creation. We estimate this to be $1 trillion initiative over time.”

Iraq could prove to be one of Citi’s best experiments if things go smoothly. According to the IMF, Iraq should expect to see its economy grow 9 percent this year alone. Moreover, Iraq commands the world’s fifth-largest deposits of oil and is increasing budget spending to $118 billion—an increase of 18 percent.

Citi evidently sees plenty of opportunity in Iraq, and judging by recent events, this could prove to be a good bet. International companies are already looking to establish operations in Iraq, where roads need to be rebuilt, telecommunication networks need to be reestablished, and other basic infrastructures—like electricity and water supplies—need to be build back up.

Back in February of this year, the mobile company Asiacell Communications PJSC became the Middle East’s largest IPO since 2008, with a $1.3 billion share sale on the Iraqi stock exchange. Two other telecom companies, Zain Iraq and Korek Telecom, are also planning IPOs.

After the U.S.-led invasion of Iraq, foreign banks were temporarily barred from operating in Iraq. Now, however, as many as 15 international banks hold operations there, as well as 7 state banks, 23 private lenders, and 9 banks that operate under Islamic law.

And it’s a good time for banking in Iraq. Oil exports are on the rise, the prime lending rate is down to 6 percent (from 17 percent in 2008), and Iraq’s status as OPEC’s second-biggest producer appears to become more and more prominent in the international eye.

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Growing International Investment in Iraq

Following Citigroup’s lead, perhaps, Standard Chartered Plc (LSE: STAN) has plans to open up Baghdad branches later this year, with more coming in Erbil and oil-rich Basra.

ValueWalk has some interesting statistics that indicate Iraq’s strengthening position, courtesy of Capital Investments. Iraq’s real GDP for 2013 is up 14.7 percent, while nominal GDP has gone up to $154.3 billion this year from 2012’s $130.57 billion. As of May, Iraq was exporting 2.484 million barrels of oil a day, and that figure is expected to keep going up.

Several major international oil companies are even expected to expand their Iraq operations. BP (NYSE: BP) has said it will likely invest around $2.85 billion in the Rumaila oilfields sometime this year, which is higher than it projected last year. Moreover, Khor Al-Zubair will see a brand-new export terminal built.

And Royal Dutch Shell (NYSE: RDS-A) is looking to begin production at the Majnoon oil field later in the summer, while Exxon Mobil (NYSE: XOM) wants to explore for oil up in the northern part of Iraq. Separately, France’s Alstom (PA: ALO) is working on a new power facility in Diyala, worth $450 million.

As this string of investment and expansion stories suggests, Iraq is a place ripe for international investment now. Citigroup is likely making a safe bet with its excursion into the oil producing nation, and if you’re looking for an interesting new investment avenue, Iraq may be worth your attention.

 

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