Thread: Archive Latest News - Think Tank - 03/11/07 - 31/12/07

Abadi: large drop in the inflation rate and the high value of the dinar against the dollar

. Dr. Haidar Abadi, Chairman of the Economic Committee in the House of Representatives, Friday, that the monetary policy pursued by the Central Bank of Iraq has led to a significant reduction in the inflation rate and the high value of the Iraqi dinar against the dollar.
3 ". Abadi said that the "Iraqi dinar began recovering since the new dinar to the market after the fall of Saddam's regime in 2003."
". He added: "The Iraqi dinar has become more stable against the dollar, as it became more reassured of the citizen and investor, in addition to Iraqi citizens began to put their savings dinars instead of dollars."
". And on the reasons for the high prices of consumer goods, de****e the significant rise in the value of the dinar against the dollar Abadi said, "The reason for this is due to the significant decline in the value of the dollar in world markets, as well as the Iraqi market, which has not yet completed its transition to a free market."

Hello Everyone,

“How Does our Balance sheet Look?�

I thought I would compile a compilation of some of the fundamental economic indicators that have come our way over the last few weeks. for those who read the blogs, none of this information will be new. But it has always served me to occasionally write down a summary of the relevant economic information, which is much the same type of summaries that eventually a currency speculator or economist will do when they begin to evaluate the risk/reward of speculating or investing in the currency.

Within the political arena, In early 2006 the Iraqis were able to establish a democratic government de****e all of the views that this would be impossible. Since that time they have passed a number of laws with the HCL being the most important and which will be eventually passed in some form. The GOI has operated within its budget with adequate income to the extent that they reported a surplus of 42B which approximates their yearly budget. So not only are they within budget and not having to print money, they have a surplus which on the balance sheet, is almost unheard of in the world today. Some thing you might expect from a country like the Swiss.

The central Bank was established and operates under policies and procedures similar to our federal reserve system. A system that is envied in the free market world. In fact an operation like this was the model for many countries in the world that had to move from a planned economy to an open market. Greenspan’s book is a very good read for just how esteemed our Fed is in the world. The CBI began a program to increase their currency reserves by selling dinar. Mostly to the outside world. Reports are that foreign currency reserves are in excess of 20B, plus the amount of gold they reportedly have. In any case a large amount. After all they needed currency reserves, acquiring reserves from the inside of Iraq was impossible. The difficulties arose when they maintained an artificially low rate that resulted in inflation becoming a serious problem. The SBA agreement of midsummer ‘06 said that the exchange rate was the problem. Consistent with classic quantity money theory and practices from successful countries in the world, they began a program of monetary interventions that included raising interest rates, increasing bank reserve requirements and reducing the base money supply through the auction process, and of course increasing the price of the dinar. Increasing the price of the dinar can be viewed as keeping the purchasing power equivalent to the declining US dollar. Therefore, since they are pegged to the dollar, this raise in the price of the dinar cannot be seen as a true increase in relative value, but a move to minimize the inflationary aspects of a declining dollar and its subsequent increase in the costs of imported goods.

The sum effect of the monetary interventions by the CBI has resulted in inflation lowering to less than 20% by all accounts that have been posted over the last couple of months. Reports suggest that inflation is somewhere between 11. and 16 percent. For a country to reduce inflation that much in less than a year is an overnight effect and again one that is un common in the world. As I have stated before, many know what to do to cure inflation but few have the banking system, the political resolve, expertise and the wealth to accomplish this very difficult reduction. We can also see this effect in the decreasing availability of the dinar. From being sold on the streets in abundance in Iraq, many dealers on the net two years ago and few now, many reports from the world that it is getting harder to get with one major dealer stating he could no longer get it from the ME. Many banks dealing both in buying and selling, all remaining dealers buying dinar and less and less sales on e-bay. Only the most obtuse and obstinate individual would claim the availability has not changed in the last years or few months.

Another aspect of reducing inflation has been the growth of the Iraqi economy. Initial forecasts for 2006 was for GDP to rise about 6%. this was eventually corrected to be 10%. A 6% GDP was been forecasted for 2007. It will in all probability be raised also. This again is a way to absorb excess currency and liquidity in the market. Growth in GDP is the way the US absorbs these large US federal deficits that the USA produces each year. We had many reports of the increases in the number of new businesses in Iraq. A good sign.

In addition we have had many reports about debt forgiveness. While in Iraq i “04, the amount of Iraqi debt was the main reason that many did not think the dinar would ever appreciate in value. In August of ‘04 the G-9 in Chile stated that 80% of the Iraqi debt would be forgiven. We thought this meant that the debt was automatically forgiven and did not realize that the debt would have to be negotiated with each country and would take much longer. It stands to reason that the CBI could not raise the value of the dinar while facing large inflationary pressures and while negotiating the debt. Along with the reduction in inflation, the current level of debt is manageable regardless if one or two remaining countries refuse to relieve the remaining balances.

“How does our balance sheet look?’ IMHO when you step back and look at the fundamentals, it is easy to say that an exchange rate of 12 dinar to the US penny is a ridiculous level and in no way represents an equitable exchange rate regime. It is an artificial rate that market forces such as continued GOI in budget, continued strict monetary policies by the CBI, increased income from oil and increased production will demand an appreciation in the rate of exchange. Greenspan stated several times that any artificial prices cannot last if market forces exert pressure on those prices. Artificial levels are always temporary in relation to changes in the market place. IMHO, all of the fundamentals are currently in place for that adjustment to take place. I can think of noting else that needs to be accomplished in this remarkable story for their currency not to be consistent with the other middle east currencies. Thank You

Iraq Kurd leader to discuss oil deals with Baghdad

BAGHDAD, Dec 9 (Reuters) - The prime minister of Iraq's Kurdistan region will hold talks with top government officials in Baghdad this week over a stalled draft oil law and disputed oil contracts signed by his administration, an official said. Nechirvan Barzani of the Kurdistan Regional Government (KRG) would meet with Prime Minister Nuri al-Maliki and other officials, the national government's spokesman, Ali al-Dabbagh said late on Saturday.

The regional government has signed a series of petroleum deals with foreign oil firms this year, angering the central government. Iraq's Oil Minister Hussain al-Shahristani has declared the contracts illegal.

"On Monday, Nechirvan Barzani is coming to Baghdad to meet with Maliki and other Iraqi officials to discuss the budget and the money for the regions," Dabbagh said.

"He will also discuss the oil law and the oil contracts that Kurdistan has signed."

The KRG has said its actions signing oil deals were constitutional, arguing it has the right to attract foreign firms to develop oil and gas resources in its northern region.

The draft national oil law, which aims to share Iraq's vast oil wealth among its different ethnic and sectarian groups, has been stalled because of disputes with the KRG and other political factions.

Last week Shahristani said "irreconcilable" differences meant the law would not be passed any time soon.

Frustrated by the delays in approving the national law, Kurdistan passed its own in August. Baghdad rejects that law.

The national oil law is one of a number of political benchmarks identified by Washington as vital for reconciliation between majority Shi'ites and minority Sunni Arabs in Iraq.

REFILE-Iraq Kurd leader to discuss oil deals with Baghdad | Markets | Reuters

Iraq's Sunni vice president gives the nod to Iraqi-US cooperation deal

MANAMA, Bahrain: Iraq's Sunni Arab vice president said Sunday he was in favor of a strategic cooperation agreement with the United States, saying the proposed pact would give Iraq a "strong and honest" partner it needs.

Tariq al-Hashemi's support for the agreement, scheduled to be negotiated and adopted by July next year, signals a significant policy shift by the established political leadership of the Sunni Arab community on the presence and influence of the United States in Iraq.

Sunni extremists have led an insurgency against U.S. and allied Iraqi forces since 2003, but several insurgent groups have changed sides in recent months and joined the U.S. military in the fight against al-Qaida in Iraq. The move won back some of the clout the once-dominant Sunni Arabs lost when their patron — Saddam Hussein — was overthrown by the Americans in 2003.

However, al-Hashemi and his Iraqi Islamic Party represent the moderate mainstream of the once-dominant Sunni Arab community and his support for the proposed pact with the Americans could widen the gap between them and Sunni hard-liners.

"There is no doubt that Iraq needs a strong and honest partner today that has the ability and is ready to help Iraq," al-Hashemi said during an address at a regional security conference in Bahrain. "Yes, I am for an agreement with the United States of America, but this does not mean that Iraq will not be able to sign bilateral agreements with other countries in the world."

U.S. President George W. Bush and Iraqi Prime Minister Nouri al-Maliki signed a "declaration of principles" on Nov. 26 that set the foundation for a potential long-term U.S. troop presence in Iraq and confirmed that Washington and Baghdad will hash out an "enduring" relationship.

The U.S.-Iraq agreement will replace the present U.N. mandate regulating the presence of the U.S.-led forces in Iraq. The Iraqi government has said it will ask the United Nations to extend the mandate through the end of next year for the last time.

Al-Maliki, a Shiite, has said the agreement provides for U.S. support for the "democratic regime in Iraq against domestic and external dangers." It also will ensure continued U.S. help in the fight against al-Qaida and in the training of Iraqi security forces.

"I think that the agreement we will sign with the United States will be a good thing, but this is a matter that must be decided by the Iraqi people and Parliament will have the last say on this," al-Hashemi told delegates attending the Bahrain conference.

Al-Hashemi has been a harsh critic of al-Maliki and the two are involved in a continuing public tussle. The vice president accuses al-Maliki of following a sectarian agenda and marginalizing the Sunni Arab community.

Al-Hashemi also has been vigorously campaigning for the release from U.S. and Iraqi jails of mostly Sunni Arab security detainees not charged with any specific crimes. His support for the agreement with the Americans, however, underlines his political pragmatism on a sensitive issue.

An enduring relationship between the two allies in the military, political and economic fields could be a major factor in curbing Iranian influence in Iraq, something that Sunni Arabs have been resentful of and would like to see end.

Iraq's Sunni vice president gives the nod to Iraqi-US cooperation deal - International Herald Tribune

ICB policy drives inflation rate down-MP

Baghdad - Voices of Iraq
Sunday , 09 /12 /2007 Time 2:22:50


Baghdad, Dec 8, (VOI) - Head of the parliament's economic committee said on Saturday that the monetary policy pursued by the Iraqi Central Bank (ICB) over 2007 had contributed to driving the country's inflation rate down.
"The Iraqi dinar value has increased against the dollar leading Iraqis to keep their reserves in dinars rather than in dollars as was the case before 2003," MP Haider al-Ibadi told the independent news agency Voices of Iraq (VOI).
Al-Ibadi, who blamed the high prices of most commodities and services in the local market for the international decrease in the dollar rate against other currencies, also said "Two more causes (local) contributed to the hike in the prices: first, Iraq has not completely transferred to the free market economy and second the monopoly of some wholesales traders on particular commodities and services."
"The economic recess seen in Iraq for the past year is attributed to the high inflation rate that cripples the local market," the Shiite legislator said.
In July 2007, the inflation rate reached 41 percent according to statements made by the Iraqi Central Bank's governor Sinan al-Shabebi.
The Iraqi parliament's economic committee chief told VOI "the Iraqi Central Bank now controls the monetary market in the country, and its efforts have contributed to driving the inflation rate of the consumable commodities down by 15% from 57%."
The government, according to al-Ibadi, will raise the salaries of the civil-servants and the retired in order to enhance their purchasing power and create a balance in the Iraqi market.
"A highly ranked committee was set up to draw up a clear vision to the future Iraqi economy," he explained.
The legislator also noted that there were many factors that would strengthen the country's economy by introducing the economic reforms and controlling the excessive imports in order to protect the local products.
"Laws organizing the entry of commodities should be enacted provided that the new acts are not contrary to the Iraqi economy transfer to the free market," al-Ibadi concluded.

Aswat Aliraq

Demand for dollar up in daily auction


Baghdad, Dec 9, (VOI) - Demand for the dollar increased in the Iraqi Central Bank’s auction during the opening sessions this week, registering at $38.840 million compared to $13.560 million on Thursday.
"The demand hit $30,000 in cash, $38.910 million in money transfers outside the country, all covered by the bank at a stable exchange rate of 1,216 Iraqi dinars," according to the central bank's daily bulletin received by the independent news agency Voices of Iraq (VOI).
The ten banks participating in the auction offered to sell $21.200 million to the central bank, which bought it all at an exchange rate of 1,214 Iraqi dinars.
"The dollar exchange rate decreased on the local market immensely, registering 1,200 Iraqi dinars for buying and 1,210 Iraqi dinars for selling, which achieved an excellent profit margin for sellers," Ali al-Yasseri, a trader, told VOI.
The Iraqi Central Bank runs a daily auction from Sunday to Thursday

Aswat Aliraq

Weak govt hampers reconciliation: VP

Published Date: December 09, 2007

MANAMA: A weak and unprofessional government hampered by rampant corruption and infighting is preventing sectarian reconciliation in Iraq, the country's Sunni Arab vice president said yesterday. In an attack underlining the deep divisions in Iraq, Tareq al-Hashemi said the government was failing at a time when marked security improvements were being made across the country. "The political process has been built on myths and allegations," Hashemi told Reuters on the sidelines of a security conference in Bah
rain. "I must be frank and the result of this political process is now a disputable constitution, a weak government and incoherent parliament," Hashemi added.

Violence has fallen sharply in Iraq over the past few months after Washington deployed an additional 30,000 troops. But Iraqi leaders have so far failed to match security improvements with political advances, making scant progress in passing laws meant to reconcile minority Sunni Arabs and majority Shiites who now lead the government. Political tensions escalated further last week after the largest Sunni Arab bloc walked out of parliament to protest against what it said was the house arrest of its leader,
Adnan Al-Dulaimi. The bloc, of which Hashemi is a key member, ended the boycott after Dulaimi was allowed to leave his house.

Hashemi said what he described as the poor performance of Prime Minister Nuri Al-Maliki's government was the result of a system that does not allow proper power-sharing among different sectarian groups. "I do have my own reservations about the way my country is being run," said Hashemi, one of two vice presidents along with Shiite Adel Abdul-Mahdi. "Deficiencies in professionalism, corruption is becoming widespread. We have been asked to go into a wide-scale reform plan ... the government is still hesitant
on that," he said.

We have to revise the political process to ensure genuine power sharing in decision making," he said. New election laws and an early election were needed to break what he described as "sectarian polarisation". Washington wants a series of reconciliation laws passed in Iraq, including one allowing former members of Saddam Hussein's Baath Party to rejoin the military and civil service, another agreeing on how to share Iraq's substantial oil wealth, as well as one organising provincial elections.

Hashemi did not make it clear if he was talking about provincial or national elections. Sunni Arabs took part in Iraq's last national elections in December 2005 and have representatives in parliament but most boycotted 2005 provincial polls and are under-represented in areas where they form a numerical majority. Hashemi also accused the government of not doing enough to support the flourishing, US-backed "concerned local citizens" movement of mainly Sunni Arabs who have signed up to form neighbourhood police patrols.


Failure to support them would have grave security implications for Iraq, he said. "I am very scared about the future. If this model collapses in Iraq then security will be set back," Hashemi said. "They should be on the payroll of the government. The government is so far resistant," he said. The concerned citizens groups have been credited for helping bring down violence. Maliki's government has indicated it would soon take over payments to many of the groups from the US military.

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Gulf revaluation meeting 'in days'
Published Date: December 09, 2007

MANAMA: Gulf Arab policymakers will meet within days to discuss currency revaluations after the oil producing region's rulers agreed to keep exchange rates pegged to the weakened dollar, Bahrain's foreign minister said yesterday. Other Gulf states preparing with Bahrain for monetary union as early as 2010 have declined say whether they are considering revaluation after agreeing at a summit last week to keep any reform talks secret, to avoid stirring market speculation.

Since the summit, the United Arab Emirates central bank has backtracked on its appeal for an end to Gulf dollar-pegs and last week ruled out any change in currency policy for "the foreseeable future". Currency revaluations are being considered, although states with dollar pegs have agreed to keep them in place, Bahraini Foreign Minister Sheikh Khaled bin Ahmed Al-Khalifa told Reuters on the sidelines of a conference in Manama.

That's being discussed between the central banks and there will be a meeting between the ministers of finance and the central bank governors in the next few days," he said, when asked about revaluations. Sheikh Khaled, a member of the ruling family, declined to say where the meeting would take place. "That will not really change a lot. It will not mean a big change." he said.

His version of Gulf currency diplomacy tallies with details given by a source familiar with Saudi foreign exchange policy who told Reuters last month Riyadh was willing to consider its first revaluation in 21 years to keep monetary union alive. Any revaluation would be "small" and would be carried out in tandem with other Gulf states, the source said, ruling out severing the riyal's peg to the dollar.

All countries with dollar pegs have no plans to drop them, Sheikh Khaled said. Kuwait broke ranks with its neighbours in May and started tracking a currency basket, saying the dollar's slide was fuelling inflation by making imports more expensive. At the Gulf Cooperation Council (GCC) summit Qatar said currency reform was a "sovereign decision" and that any country had the right to follow Kuwait's example. "The right is there. Yes, each country has the right, but we do have a common policy," Sheikh Khaled
said.

Kuwait cast doubt on the viability of common currency policy by scrapping its peg. The UAE raised expectations it would follow when it called last month for all Gulf states to track currency baskets, drawing a rebuff from Saudi Arabia. "We are going to take the appropriate decision, but only as the GCC," UAE Foreign Minister Sheikh Abdullah bin Zayed al-Nahayan told Reuters on Saturday in Bahrain, declining to give details of the meeting of central bankers and ministers.

Saudi Arabia, the largest Arab economy, has not changed the riyal's rate since 1986. With the Gulf's largest population, the kingdom ran budget deficits in the 1990s and fears a revaluation would cut the riyal value of dollar-denominated oil revenue. Its smaller, wealthier neighbours are more concerned the weaker dollar is eroding savings of expatriates, who dominate their workforce, and hampering their central banks in the fight against inflation, at decade highs across the Gulf.

The dollar pegs force the region to shadow US interest rates. With the US Federal Reserve cutting rates to contain the fallout from a mortgage crisis, Gulf central banks are following to prevent currency appreciation. With more Fed cuts expected and the dollar hitting record lows on global markets last month, investors expect Gulf states to give up on their pegs and allow their currencies to appreciate. Gulf central banks are trying to quash those expectations.

UAE Central Bank governor Sultan Nasser Al-Suweidi said last week his country had no plans to alter exchange rate policy, re-aligning his position with that of Saudi officials including Finance Minister Ibrahim Al-Assaf. Suweidi had nourished market expectations of an imminent change in policy when he said last month he was under growing social and economic pressure to drop the peg and track a currency basket.

Unlike Kuwait, the UAE would only act in concert with its neighbours, Suweidi said in a series of interviews that led investors to push the UAE dirham to 17-year high and the Saudi riyal to 21-year peak. The Gulf states also agreed at their summit to stick to a 2010 deadline for monetary union. Oman, one of six states that had agreed to the target date, said last year it had decided not to join by 2010. "I hope we do but I don't think we will make 2010," Qatari Prime Minister Sheikh Hamad bin Jassim bin Ja
br Al-Thani told the conference in Bahrain, when asked whether other states would meet the deadline.

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Note- this is an interesting article regarding the reporting of oil reserves, and potential consequences. It's a few months old, but still has much merit. I don't recall seeing it before.



Why Kuwait should keep its oil reserves secret

Parliament wants to know the truth about Kuwait's oil reserves. This week several prominent MPs called on the government to publicly disclose the size of Kuwait's proven oil reserves. The MPs claim that they cannot plan the country's budget without knowledge of the reserves.


Like most nations, Kuwait's oil reserves are a matter of national interest. There's sound logic in keeping the real figure secret. First of all, within the energy industry there is a significant difference between proven, probable and possible reserves. In laymen's terms, proven suggests about a 90 percent chance - all conditions being favorable - of the oil actually being lifted from the ground and sold on the market. Probable suggests a 50 percent chance and possible about a 10 percent chance.


So Kuwait's proven reserves may represent only a fraction of the larger whole. While banks and international stock markets will accept only 'proven' reserves as assets, a nation or an energy company will develop its long term strategic plans based not only on what's proven but also what's probable and even possible.


In other words, Kuwait can raise funds by borrowing against proven reserves, if need be, from an international bank. But the Energy Ministry, Supreme Petroleum Council and the Kuwait Petroleum Corporation will plan for the country's energy future by taking into account not just proven but also probable and possible reserves.


Another reason for Kuwait to keep its mouth shut - metaphorically speaking - is the OPEC quota system.


In 1985, OPEC decided to tie proven reserves (the 90 percent category) to production quotas. Under its agreement with other OPEC producers, Kuwait has the right to produce nearly 2 million barrels per day. Its quota is based on Kuwait's official statement that it has 99 billion barrels of proven (remember the 90 percent) oil reserves.


In other words, Kuwait is allowed to produce 2.247 million barrels per day because it has nearly 100 billion barrels in proven reserves. In reality, Kuwait produces around 2.6 million bbl/d, according to the US Department of Energy and official OPEC statistics.


All OPEC producers cheat a bit on their production quotas. But not too much. The quotas exist to help OPEC collectively influence global oil prices. As long as oil producers keep the global oil supply tracking closely with global oil demand, they can manipulate global oil prices. Being able to affect the price of a barrel of oil is critical to Kuwait's long term economic health. Oil revenues account for two-fifths of Kuwait's GDP.


In other words, Kuwait works with Algeria, Indonesia, Iran, Iraq, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela to control global oil prices and by extension the revenue it will earn each year from oil exports.


Of course, since quotas are calculated based on proven reserves, there's considerable doubt about the veracity of each OPEC nation's stated proven reserves. In 1984, the year before the quota system was introduced, Kuwait had 63.9 billion in proven reserves. A year later, the quota system came in and with it, Kuwait's stated proven reserves jumped to 90 billion - an incredible leap of 26.1 billion in the space of one year.


A remarkable leap for any oil producer, but especially so for Kuwait given that it did not find any new mega fields that year, which just happened to coincide with the new production quotas.


Other OPEC producers also saw suspicious (or auspicious depending on how you look at it) jumps in proven oil reserves. Iraq went from 47 billion barrels in 1987 to 100 billion barrels in proven reserves a year later. The same year, Iran doubled its reserves from 49 bbls to 93 bbls. The UAE also saw an astonishing increase in its holdings from 1987 to 1998, with proven reserves tripling from 31 billion barrels to 92 billion barrels.


Nor would it make sense for Kuwait to reveal the truth about its oil reserves. In January 2006, Petroleum Intelligence Weekly (PIW) reported that Kuwait's proven reserves were about half of what the government claimed or about 48 billion barrels. The report, which cited internal documents, was later denied by oil officials in Kuwait but then vaguely reaffirmed by recently ousted Oil Minister Sheikh Ali Al-Jarrah, who told Al-Jarida that he couldn't deny the PIW estimates.


Conflicting information, doubt and ambiguity are useful and necessary. Kuwait hopes to raise its production to 4 million barrels per day by 2020. To do so, however, it needs to increase its OPEC quotas - and remember the quotas are tied to proven reserves.


So does Kuwait have 99 billion or 48 billion barrels? The truth is that no one really knows the truth. Or at least no one outside the top tiers of the government and energy industry. But that's why state secrets exist in the first place. None of other the 11 OPEC members allow independent auditors to confirm their reserves.


Kuwait can't be expected to break the rules of a game that all its allies are playing.

Qatar defends leaving Iraq out of GCC talks
By Habib Toumi, Bureau Chief
Published: December 09, 2007, 00:23


Manama: Qatar's Prime Minister Hamad Bin Jasem Bin Jabr Al Thani on Saturday rejected a rebuke by Iraq's National Security Adviser Mowaffak Al Rubaie for not inviting his country to the GCC Summit early this month.

"You have invited Iran and Turkey to the GCC Summit. Iraq is an Arab country and I think it was unfair of GCC states, to say the least, to discuss issues related to Iraq without inviting it to the talks," Al Rubaie reproached during an open question and answer session following Shaikh Hamad's speech.

But Al Thani, although surprised by the public criticism, remained composed.

"First of all the Iranians have requested to come and Qatar as the host accepted the request. The same thing happened with the Turks as well. We agree that Iraq is important, but at the same time, we need a strong Iraq, politically and militarily, but also in terms of unity," he said. "There is no unity in Iraq yet."

Right of a host

Qatar surprised its GCC allies when it invited Iran's President Mahmoud Ahmadinejad to the annual summit. It was the first time that an Iranian president attended the meeting of the organisation set up in 1981 to counter Iran's revolutionary expansionism.

Qatar said as a host it had the right to invite guests and insisted that it had informed other GCC members about the invitation.

Gulfnews: Qatar defends leaving Iraq out of GCC talks

Why Kuwait should keep its oil reserves secret

Parliament wants to know the truth about Kuwait's oil reserves. This week several prominent MPs called on the government to publicly disclose the size of Kuwait's proven oil reserves. The MPs claim that they cannot plan the country's budget without knowledge of the reserves.


Like most nations, Kuwait's oil reserves are a matter of national interest. There's sound logic in keeping the real figure secret. First of all, within the energy industry there is a significant difference between proven, probable and possible reserves. In laymen's terms, proven suggests about a 90 percent chance - all conditions being favorable - of the oil actually being lifted from the ground and sold on the market. Probable suggests a 50 percent chance and possible about a 10 percent chance.


So Kuwait's proven reserves may represent only a fraction of the larger whole. While banks and international stock markets will accept only 'proven' reserves as assets, a nation or an energy company will develop its long term strategic plans based not only on what's proven but also what's probable and even possible.


In other words, Kuwait can raise funds by borrowing against proven reserves, if need be, from an international bank. But the Energy Ministry, Supreme Petroleum Council and the Kuwait Petroleum Corporation will plan for the country's energy future by taking into account not just proven but also probable and possible reserves.


Hello Everyone,

I like the statements about banks being able to lend and are only interested in "proven" fields. If we can remember, Iraq reported they had 500 surveyed fields. Members of the Army security teams where the ones who leaked the information that Iraq would contain more reserves than SA. Later, this was confirmed in the press. My oil field friends tell me that a surveyed field is "bankable". This article confirms that when its time to evaluate just how much money this country has, and what exactly is a fair market value for their currency, those proven fields will be taken into the equation. i.e. There proven fields are a major portion of the balance sheet in terms of Iraqs wealth and either directly or indirectly will be used to "back" up this currency. Thank You.