By Sarah El Safty and Muayad Kenany

DUBAI/NAJAF, Iraq (Reuters) – A bumper harvest and a hefty grain surplus in Iraq, typically one of the Middle East’s biggest wheat importers, has left the government with the prospect of a net loss of nearly half a billion dollars, according to Reuters calculations.

The 1.5 million metric ton wheat surplus, helped by better than expected rains but above all by government subsidies, is excellent news for farmers.

For the government, however, which pays them more than double the global market price to encourage cultivation of the food staple in often arid conditions, the price is high.

According to the calculations, based on official figures and conversations with more than 10 government officials, farmers, mill owners, analysts and exporters, the government will have made a loss of $458.37 million, once it has paid the farmers and assuming it manages to sell the excess to private millers in Iraq at an agreed price.

Critics say it needs to better balance the challenges of motivating farmers and limited financial and other resources.

“This is poor planning,” said Adel Al Mokhtar, former adviser to the Iraqi parliament’s agriculture committee. “Why do we produce more than we need, which also leads to wasting water?” he asked.

To meet the needs of its subsidy programme, the government needs between 4.5 and 5 million tons annually.

Historically, Iraq, as part of the Fertile Crescent from the Mediterranean to the Gulf is where farming developed more than 10,000 years ago.

In recent years, Iraqi agriculture has suffered from a lack of rainfall linked to climate change, less water flowing through its two main rivers, the Tigris and the Euphrates, and decades of conflict that have interfered with cultivation.

The United Nations puts Iraq among the five most vulnerable countries to climate change globally, making food security a priority for the government.

But the country, the second largest producer in the Organization of the Petroleum Exporting Countries (OPEC) is also facing a reduced budget in 2025 after lower oil prices.

“If oil prices start coming down the government has first to pay salaries of public service employees so how much will be left to subsidise the agriculture sector, that’s the question nobody knows the answer to,” Harry Istepanian, an independent energy and water expert in Washington and a senior fellow at the Iraq Energy Institute, said.

STORAGE PROBLEM

Baghdad could try to export its surplus but said it prefers to keep it inside the country and support its millers. Limited storage space means it cannot store the surplus for next year, Haider Nouri, director general of Iraq’s grain board, told Reuters.

Although the government was buying for 850,000 Iraqi dinars ($649.35) and selling for 450,000 dinars, it did not consider that a loss because the grain was staying in the country, Nouri said.

“There is no loss considering that the money is spent inside the country and in Iraqi currency, employing workers, supporting flour (mills), relying on the local product, and abandoning flour imports from Turkey, the Emirates, and Kuwait,” he said.

Farmers said rains had helped them, but the government subsidy was crucial.

Ashour Al Salawi, a farmer in Iraq’s southern province of Najaf, said the government price had led him to increase the area he planted with wheat by 50% to a total of 15 dunums. A dunum is a land measure of less than an acre.

In contrast to previous years, he said the money was paid on time.

“There’s a huge difference between this year and previous years,” Abbas Obeid, another farmer in Najaf, said.

“It was the compensation but we were also provided with water, electricity and subsidised fertilisers.”

Mohsen Abdul Amir Hadhud, head of the agricultural cooperative in Najaf, said most farmers had seen a major improvement in their lives.

“The farmers’ living conditions have improved due to government support for the wheat crop. They have restored their homes, increased the cultivated areas, and purchased good agricultural supplies,” Hadhud said.

The government also provided support for other crops such as rice, buying it at a price between 850,000 and 1 million Iraqi Dinars depending on its quality.

MILLERS BARGAINING POWER?

The decision to keep the surplus wheat in Iraq could lead to pressure on the government from the millers for lower selling prices given that they potentially can import for less.

“The price set by the government, which is 450,000, is not final, and we expect the price to be reviewed by the government, since the price that the government will sell to mills is higher than the global price,” Ali Fadhel, director of Al-Aswar Company, a private sector mill, said.

Farmers, meanwhile, may find themselves less well rewarded in the 2025 season, when Nouri said Baghdad was considering cutting the price it pays them.

“It is possible that the price of purchasing wheat will decrease [next year]…but it will not be significant, and will be higher than the global market,” he said.

The farmers in Najaf, say that undoubtedly will mean less wheat.

“It would be a disaster if they decrease the price next year,” Hussein El Morshedy, whose production increased more than 60% this year, said.

($1 = 1,309.0000 Iraqi dinars)

By Paul Carsten

LONDON (Reuters) -Oil prices rose more than 1% on Thursday, underpinned by a spike in fuel demand as a major storm barrelled into Florida, with Middle East supply risks also in focus.

futures rose $1.01, or 1.3%, to $77.59 a barrel by 1108 GMT. U.S. West Texas Intermediate (WTI) futures were up $1, or 1.4%, at $74.24.

In the United States, the world’s largest oil producer and consumer, Hurricane Milton made landfall in Florida, where about a quarter of fuel stations sold out of gasoline, helping to support crude prices.

Prices spiked this month after Iran launched more than 180 missiles against Israel on Oct. 1, raising the prospect of retaliation against Iranian oil facilities. With Israel yet to respond, crude benchmarks have eased once more and remained relatively flat through the week.

But investors remained wary, given Israeli Defence Minister Yoav Gallant promised that any strike against Iran would be “lethal, precise and surprising”.

U.S. President Joe Biden spoke to Israeli Prime Minister Benjamin Netanyahu about Israel’s plans concerning Iran, though ANZ analysts said there is growing concern that Israel’s allies have little influence on its strategy.

Even with threats to the oil-producing Middle Eastern region in the spotlight, demand concerns continue to underpin the fundamental outlook.

“Without a genuine demand excess or supply shortage, the risk will remain skewed to the downside. Even if the Israeli bellicose rhetoric is embodied in an Israeli assault on Iranian oil infrastructure, the price reaction could be brief, albeit violent,” said Tamas Varga at oil broker PVM.

The U.S. Energy Information Administration (EIA) on Tuesday downgraded its demand forecast for 2025 on weakening economic activity in China and North America.

EIA data on Wednesday showed crude inventories last week built more than expected by analysts in a Reuters poll.

Investing.com — Oil prices rose Thursday, rebounding after two days of steep losses with the focus still on the Middle East conflict and with a major storm hitting Florida. 

At 07:30 ET (11:30 GMT), rose 1.2% to $77.46 a barrel, while rose 1.2% to $74.14 a barrel. 

Both contracts have weakened by around 5% over the past two sessions, with demand concerns continuing to underpin the fundamental outlook

Milton hits Florida 

In the US, Hurricane Milton has made landfall in Florida, and while the storm has largely dodged the oil infrastructure in the Gulf of Mexico it has already driven up demand for gasoline in the state, which has helped support crude prices.

“Recent reports suggest that Chevron (NYSE:) shut its fuel-importing terminal at the port of Tampa as Hurricane Milton approached the Florida coast. The move was a precautionary measure as the company shut in production ahead of the hurricane,” said analysts at ING, in a note.

Middle East tensions persist amid ceasefire speculation

Hostilities between Israel, Hamas and Hezbollah have persisted, with Monday marking a year since the war was declared. 

Reports that Hezbollah was pushing for a ceasefire had battered oil markets earlier this week, although signs of any dialogue have been limited. 

Fears of disruptions in oil supplies, due to a bigger war in the Middle East, served as a major boost to oil prices over the past week, after Iran launched a strike on Israel.

Traders still remained on edge over a potential escalation in the conflict, especially if Israel struck Iran’s oil facilities. 

China stimulus in focus 

Markets were awaiting more signals on Chinese stimulus measures, after a swathe of monetary stimulus measures from the country largely underwhelmed. 

Chinese officials said they will hold a press conference this Saturday to outline plans for more fiscal stimulus. 

The country is the world’s biggest oil importer, and is struggling to shore up economic growth. 

UBS looks for higher oil prices  

Ongoing geopolitical risks are expected to maintain a risk premium in the oil market, but UBS strategists also think fundamental factors will continue to support higher oil prices in the months ahead.

Supply growth remains modest, keeping the market in deficit, the bank said.

According to the latest data from the International Energy Agency (IEA), global oil production increased by only 0.3% between December 2023 and July 2024.

The IEA has also revised its 2024 supply growth estimate downward from 1.8 million barrels per day (mbpd) in December to just 0.7 mbpd in September. In addition to the extended voluntary OPEC+ output cuts, supply growth in the U.S. and Brazil has also slowed.

For 2025, UBS expects another year of subdued U.S. oil output, influenced by lower prices, uncertainty about the return of OPEC+ barrels, and continued emphasis on capital discipline.

“Demand growth, while suffering from China, continues to lead supply growth with global oil inventories still in decline,” UBS strategists note.

Furthermore, monetary policy easing by major central banks “should also support economic and oil demand growth next year,” they added.

As such, UBS remains positive on oil prices, forecasting to rise above $80 per barrel in the coming months.

(Ambar Warrick contributed to this item.)