Iraq Faces The Abyss With Coronavirus And Oil Collapse

(Reuters)

Iraq is facing two crises at the same time that threatens its future. First, Russia and Saudi Arabia got into an oil war that devastated prices. Iraqi crude sold for $51 a barrel in February. By March Brent prices were in the twenty dollar range. Second the coronavirus hit the country. As a result, a curfew was imposed which has closed down most businesses and put non-government employees out of work. Internationally that has also greatly reduced the demand for oil. Together that means Iraq is heading towards an economic blackhole.

Paying public workers is the largest cost of the government. More than 75% of the 2020 draft budget is allocated for that purpose. Currently the government needs $3.5 billion a month to pay its employees, but it is only earning around $2 billion. Not only that, but $1 billion has to be paid to the oil companies working in the country first. That is causing a growing deficit. When oil prices are up Baghdad always adds more jobs because they are an essential part of governance. The ruling parties use them to maintain their followers in patronage networks. The budget is never based upon economics and that is now coming back to haunt the country.

The dual crises is also impacting the authorities ability to deal with the coronavirus. The Health Ministry asked Baghdad for $5 billion in emergency funds to deal with the outbreak, but there was no money available. The Ministry was reduced to asking for donations. It has only received around $50 million so far. With its other obligations Iraq simply can’t maintain its services. They have been lacking for decades now, but they could even get worse giving the current situation.

Iraq is facing an abyss with no easy way out. There is no prime minister to provide a strategy for how to solve these problems. Not only that, but government planning has always been weak to begin with. For the short term it could use its foreign reserves to pay the bills. It will also have to implement austerity measures but that’s unlikely until a new premier is named. For the long term it will likely have to borrow large sums to keep it out of the red. The bigger issue is that Iraq knows it is the most oil dependent country in the world and has absolutely no interest in fixing it because petroleum wealth suits the interests of the elite.

SOURCES

Gebeily, Maya, “Iraq faces financial calamity after crude crash,” Agence France Presse, 3/18/20

Al Mada, “The government floundering to provide salaries for employees after oil and Corona flu,” 3/28/20

Mohammed, Aref, Al Sayegh, Hadeel, Soldatkin, Vladimir, “Iraq proposes budget cuts to foreign oil firms after oil price crash,” Reuters, 3/27/20

Rubin, Alissa, “Oil Prices Crash, Virus Hits, Commerce Stops: Iraq Is in Trouble,” New York Times, 3/29/20