The Effect of Iraq’s Oil Trade on Politics and the Dinar
Iraq has done a great job of setting up their oil trade. They auctioned off more than a dozen foreign oil contracts and are looking to conduct another auction in the last quarter of 2011. In addition, Iraq has over 143 billion barrels of proven oil reserves. Iraq is finally in a position to reap in oil profits. Iraq stands to greatly benefit economically from the rising prices of oil and the flood of foreign investment in oil infrastructure. However, just as importantly, Iraq’s oil trade is an opportunity for Iraqi politics to shine and benefit the dinar.
Iraq is going to be a major global player. There’s no doubt about that. However, there are still some concerns as to the security and stability in Iraq – questions that loom over Iraqi politics. Will Iraq be able to provide a peaceful climate to attract foreign investors? Will Iraq be able to secure foreign investments? Will Iraq be able to attract more foreign investments? These are all questions that the current government is in a position to answer. Prime Minister Maliki and his cabinet must relish this opportunity and the best way to respond to these questions is how Iraq handles its oil trade.
With the international spotlight on Iraq, if Iraq can smoothly navigate through its oil contracts and fulfill its responsibilities, it will be a huge win. Iraq’s government will regain the confidence of the international community. Iraq will be able to show the world that it is a place where mutually beneficial global trade can happen. More trade means more relationships. More relationships extend into politics and it is essential for Iraq to strengthen all of its political relationships. This is another key for the Iraqi dinar as well.
Like any currency, the strength of the dinar is tied to the strength of the country. Stability, security and growth are all key factors for the dinar’s value. Iraq’s growth is unquestioned, but it must still prove that Iraq will become and stable and secure country where both its citizens and foreign investors can flourish. A consistent and secure oil trade will prove just that.
Iraq’s oil trade will enable the dinar to become a widely traded currency. As more and more foreign countries buy oil from Iraq, more and more dinars will be in demand. For instance, if a British company wants to purchase oil from Iraq, it must buy dinars with pounds to pay Iraq. As the oil trade ramps up, so will the frequency of dinars being exchanged. Hopefully, soon after, the dinar will be listed as a currency pair to be traded in the open market so that market forces can determine the true value of the dinar.
Iraq must protect its oil trade. It affects everything.
Guest post by: Daniel Carlson of Dinar Profits