Sunday, July 26, 2009

Oil Revenues Up, But Too Late For Iraq’s Provinces

In June 2009 Iraq had the highest oil revenues of the year, yet that has not helped Iraq’s provinces, which are facing massive budget deficits. That’s because it took five months for the country to reach the petroleum price set in the 2009 budget, and oil exports have still not achieved their target. 2008 was also a boom year for Iraq’s oil industry, and the provinces made large commitments to development projects as a result. Now that’s all coming back to haunt them.

The Oil Ministry announced that it earned almost $3.175 million in oil exports in June 2009
. A barrel of Iraqi crude sold for an average price of $64.37 that month. Those were both highs for the year. The 2009 Iraqi budget called for 2 million barrels a day in exports at $50 each to earn an average of $3 billion a month. May 2009 was the first month that Iraq earned over $3 billion, and Iraqi oil sold for over $50. Exports have still not officially met their mark however.

This has led to a large budget deficit, which is playing out in Iraq’s provinces. Several have announced huge money shortages that are hindering their development projects. The head of the construction and development committee in Basra told Niqash that it had a 97 million dinar deficit. This was holding up development projects, and the province was waiting for the central government to bail them out. Basra is in the process of firing local officials to try to save money. The Maysan council said that they couldn’t start any new projects because of their money problems. Council members said they received 94 billion dinars from Baghdad, but have 250 billion dinars in outstanding contracts from the old council. They too were hoping for additional money at the end of this year from the central authorities. The chairman of Karbala’s reconstruction and planning committee announced that it had a 164 billion dinar deficit. In the previous month, the new governor of Anbar stated that his province owed $181 million from 2008. Baghdad, the most populated governorate in the country said that it was 155 billion dinar short. These deficits were a result of smaller budgets allocated in 2009, and large contracts signed when Iraqi oil prices were high in 2008 that are still being paid for.

Iraq needs billions to rebuild after years of wars and international sanctions. The country is almost completely dependent upon oil to garner revenues, so development goes up and down with the price of crude and its exports. Financial rules, which allow the Central Bank and Finance Ministry to refuse to use the large surpluses leftover from previous years, also hamper budgeting and spending. Until the oil industry is straightened out and reaches its potential, something that is not assured, the country will probably never earn enough to meet its large needs, and reconstruction will go boom and bust with the price of crude.

SOURCES

Aswat al-Iraq, “2009 budget deficit to hinder new projects in Missan,” 7/11/09
- “Deficit in Baghdad provincial council’s budget,” 6/13/09
- “ID164 billion budget deficit in Karbala,” 7/21/09
- “Iraq’s oil exports reach $3.17m in June 2009,” 7/22/09

Lando, Ben, “Iraq oil exports, revenue up,” Iraq Oil Report, 6/29/09

Niqash, “niqash meets anbar’s new governor,” 6/18/09

Al-Wazzan, Saleem, “still no public services in basra,” Niqash, 7/22/09

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