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Dear Investors and Friends,

The AFC Iraq Fund declined 1.7% for August, while its benchmark, the Rabee Securities U.S. Dollar Equity Index (RSISX USD Index), was down 2.4%. For the year, the AFC Iraq Fund is up 12.3%, while the RSISX USD Index is up 7.9%.

The month marked the recovery of regional oil exports through the Gulf to about two-thirds of pre-war levels, thus limiting the impact of the initial closure of the Strait of Hormuz for the region’s oil exporters. In Iraq’s case, the recovery of both its southern exports through the Strait of Hormuz (green bars in chart below) and northern exports via Türkiye’s Ceyhan port on the Mediterranean Sea (maroon bars in chart below) took the combined exports to 60% of pre-war levels. As long as the current U.S.-Iran no-peace/no-war stalemate continues, the recovery’s momentum is unlikely to take exports to much higher percentages of pre-war levels; nevertheless, exports are likely to improve incrementally over the next few months.

Actual and Projected Oil Exports for 2026

The two-month lag between oil exports and the receipt of their revenues^** means that full oil revenues from the August export recovery will not be felt until October (chart below) – in much the same way that the revenue shock from the Strait of Hormuz’s closure was not felt immediately, as asserted at the time in “Market Reaches All-Time Highs as War Rages”. Somewhat mitigating the sharp drop in oil revenues of the last few months, and the reduced revenues from projected oil exports, is the sharp recovery in non-oil revenues that benefited from the implementation of the new automated customs tariff system at the end of 2025. In January-June 2026, non-oil revenues amounted to Iraqi dinars (IQD) 7.4 trillion, which was 50% higher than in the same period of the prior year. Nevertheless, even if this growth continues for the rest of the year, non-oil revenues cannot fully make up for the sharp drop in oil revenues; thus, the year’s projected deficit will be much larger than in recent years.

The budget deficit was funded in the last few months – and will continue to be funded for the rest of the year – by a combination of tight cost controls and the issuance of domestic debt, in the form of treasury bills (T-Bills). The silver lining, as asserted in “What Next after a Gangbuster Three-year Rally”, is that this much increased need for sovereign debt will play a big role in developing the country’s bond market, which will ultimately bring with it “bond market discipline” that has the potential to correct the structural imbalances between current and investment spending that were perpetuated in every budget over the last two decades.

Actual and Projected Revenues and Expenditures for 2026

In conclusion, the high quality of the fund’s holdings, and their future earnings growth, should drive the fund’s performance irrespective of any volatility that the next few months might bring. However, considerable risks remain, in that the pause in the tit-for-tat attacks between the U.S. and Iran could collapse, starting a conflict that could escalate considerably beyond the control of participants, direct and indirect, and become an all-out war engulfing the region.

Notes:
(*) Projections for oil exports assume incremental month-over-month increases from August’s estimated levels. Blended oil prices for southern oil exports assume a discount of $25 per barrel (/bbl) to Brent crude futures prices, while blended oil prices for northern oil exports assume a premium of $1/bbl to Brent crude futures prices (futures prices as of 27-Aug-2026; September reflects a blend of actual and forward pricing). Projected non-oil revenues assume continued growth, but at moderating rates from those experienced in the first half of the year. Projected expenditures assume continued cost controls; each month’s projected expenditures are based on a three-month average of the preceding months’ figures and include estimates for oil capital expenditures that were not made in the first half of the year.

(**) Based on an ongoing review of historical oil exports as reported by the Ministry of Oil and oil revenues as reported by the Ministry of Finance, a two-month lag is the best single overall fit, but for detailed work in Excel, a better fit is a split of 44% same-month and 56% two-months-prior exports, reflecting the mix of cargo payment terms.

AFC Iraq Fund Marketing Information as of 31^st July 2026

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NAV as of 31^st August 2026 and performance table since inception

Regards
 
Ahmed Tabaqchali
Chief Strategist AFC Iraq Fund
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Disclaimer:

This newsletter is not intended as an offer or solicitation with respect to the purchase or sale of any security. No such offer or solicitation will be made prior to the delivery of the Offering Documents. Before making an investment decision, potential investors should review the Offering Documents and inform themselves as to the legal requirements and tax consequences within the countries of their citizenship, residence, domicile and place of business with respect to the acquisition, holding or disposal of shares, and any foreign exchange restrictions that may be relevant thereto. This newsletter is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law and regulation, and is intended solely for the use of the person to whom it is intended. The information and opinions contained in this newsletter have been compiled from or arrived at in good faith from sources deemed reliable. Opinions expressed are current as of the date appearing in this newsletter only. Neither Asia Frontier Capital Ltd (AFCL), nor any of its subsidiaries or affiliates will make any representation or warranty to the accuracy or completeness of the information contained herein. Certain information contained herein constitutes “forward-looking statements”, which can be identified by the use of forward-looking terminology such as “may”, “will”, “should”, “expect”, “anticipate”, “project”, “estimate”, “intend”, or “believe” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance of Funds managed by AFCL or its subsidiaries and affiliates may differ materially from those reflected or contemplated in such forward-looking statements. Past performance is not necessarily indicative of future results.

The AFC Iraq Fund is registered for sale to qualified/professional investors in Japan, Singapore, Switzerland, the United Kingdom, and the United States. The Fund has appointed Acolin Fund Services AG, Maintower, Thurgauerstrasse 36/38, 8050 Zurich, Switzerland, as its Swiss Representative. NPB Neue Privat Bank AG, Limmatquai 1 /am Bellevue, CH – 8024 Zürich, Switzerland is the Swiss Paying Agent. In Switzerland, shares shall be distributed exclusively to qualified investors.  The fund offering documents, articles of association and audited financial statements can be obtained free of charge from the Representative. The place of performance with respect to shares distributed in or from Switzerland is the registered office of the Representative.

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