KTFA: Tivon: The establishment of a Federal Oil and Gas Council (FOGC), which would act as the main body for overseeing the Iraqi petroleum sector. The membership of the FOGC would consist of
The relevant Deputy Prime Minister.
The Minister of Oil
The Minister of Finance
The Minister of Planning
The Governor of the Central Bank of Iraq
A ministerial-level representative of the Kurdistan region (and any other region formed pursuant to the Constitution subsequent to the enactment of the (oil and gas law)
Representatives from each producing governorate not included in a region.
The heads of the Iraq National Oil Company and the Oil Marketing Company (SOMO) (and other relevant companies)
And up to three experts specialized in matters relating to oil and gas, finance or economics.
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Tivon: Anyway, lets get back to business. The above is an overview of the Oil & Gas Law written by someone (CBS) last year. Not me. This is a brilliant overview which is only a portion of the overall coverage.
I want you to read this and take note of the relevant authorities one of which includes the CBI. You see how this is all intertwined? You see how if the CBI would have released the rate prior to the Oil & Gas Law being voted on and enacted would have conflicted with its own positions on the council?
I posted this example before. Let’s look at it again. Picture a Fed-appointed agent who orders $12,500 worth of oil from Iraq. Payment will consist of a $12,500 transfer from the Fed’s foreign currency reserve IQD account to the IRAQ Oil payment account at the CBI (Central Bank of Iraq) in a form otherwise known as PetroDollars/PetroDinar.
Even though the world spot price of oil is defined in terms of USD, the actual transaction may take place in any internationally recognized currency agreed to by the parties.
For example, Iran only accepts Yen from Japan for their oil orders, because they don’t want USD in their foreign currency reserves. So how does the CBI recapture the money? The $12,500 order is filled with 250 barrels of oil based on the spot price on the date of the sale (for this example we used a $50 USD spot price).
What does it cost Iraq to produce the oil to fill this order? Well they have negotiated productions agreements for approximately $1.50 USD/barrel. From that price $.50 USD goes to the national Iraqi oil company who is the partner in the field the oil came from. Out of the remaining $1.00 the other oil field partners have to pay the Iraq government a profit tax of $.35 USD (35%).
The net cost to Iraq to produce a barrel of oil used in this scenario is ex $.65 USD. (i.e. $1.50–.50–.35 per gallon) What does all that mean? It cost Iraq $162.50 to bring back a 10,000 IQD note! Can they afford that? I think so! So, instead of paying out $12,500 for a 10,000 IQD note, they only pay $162.50! That doesn’t add to the money supply much at all does it!
They receive their IQD back and place it in the CBI, or destroy it. The transaction is completed with the Federal Reserve exchanging foreign reserve credits which are equal to $12,500 USD (which had a net acquisition cost of $4,000 USD for the US) for 250 barrels of oil (Which has a TOTAL COST to produce of $162.50 USD for Iraq.
You see how out of 50 different interpretations it only takes one to make sense? Win-Win for everyone across the board.
More completely explained, and simply put, it cost Iraq $162.50 USD from their foreign currency reserve accounts to redeem the value of 10,000 IQD, which goes into their operating accounts. At the same time the US got $12,500 worth of oil for a net cost of $4,000.
That’s how it was originally planned for Iraq to RV/RI at 1 IQD = 1 USD, with the variable being the political element (i.e. UN Sanctions) GOI (Government of Iraq) (IMF) (World Bank actions etc.) IMO
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Tivon: Don’t worry to much about the math. I am showing you why we basically have not seen the exchange rate.
They need the Oil & Gas Law in place on a constitutional basis in order to maximize profits for the new exchange rate to mean anything for the overall GDP internationally.
This is why the 1:1 out of the gate makes sense. Because of the oil price. The EFSL will allocate funds to the Ministry of Oil because of the private sector where the hiring for positions in the oil refinery will help bolster the overall output in terms of exports.
The purpose of the Refining Law is to encourage private sector investment in Iraq’s refining sector, and it specifically allows the private sector to establish crude oil refineries, possess, operate and manage their facilities, and market their products.
The Oil & Gas Law plays directly into the reinstatement. The CBI was not going to release the rate just because the EFSL was published. They are on the Council. They are watching what Al-Kazemi is doing. Which is why we need to focus on him. The CBI becomes relevant after the Oil & Gas is done.
This is a very powerful month. That session will reveal everything. IMO
