The Global Economic Crisis and Iraq's Future
By Daveed Gartenstein-Ross
My colleague Josh Goodman and I have an article in the new issue of inFocus examining the impact that the global economic crisis will have on the future of Iraq. An excerpt:
Last summer, when oil prices reached all-time highs virtually every
day, it seemed that one of the few silver linings was a more stable
future for Iraq. Surging oil prices appeared to give Iraq a windfall;
experts forecast an improving economy that could diminish support for
the insurgency and increase resources for Iraq's nascent security
forces. But now that the collapse in the world's economy has caused oil
prices to plummet, what does the future hold for Iraq?
While estimates of Iraq's dependence on oil revenues vary wildly,
oil clearly lies at the heart of the country's economy. Indeed, median
estimates hold that oil accounts for more than 80 percent of its
revenues. Iraq now faces several challenges spawned by the global
recession. These challenges come just as the U.S.—pursuant to
agreements with Iraq's government—is due to cease its patrols of
cities. While a spiral into chaos is not inevitable, there is a clear
opening for insurgent factions.
The decline in oil prices has left Iraq short of revenues. Speaking
at a London-based think tank in early May, Iraqi deputy prime minister
Barham Saleh said that the economic crisis "has had a serious impact"
on Iraq's economy, with "plummeting oil prices" forcing the country "to
constrain our government spending."
Accordingly, Iraq's government slashed its 2009 budget by about 25
percent, from $80 billion to nearly $60 billion. Yet, despite this
reduction in expenditures, around $20 billion of that figure will be
deficit spending. This is made possible in part by the fact that a
budgetary surplus of around $35 billion remains from the 2008 oil boom.
Jim Durso, who served in the transportation ministry of the
Coalition Provisional Authority, predicts that Iraq will try to "make
that money last as long as they can, spend it on essential services,
and hope that foreign investment can pay for infrastructure."
However, budgetary shortfalls will likely directly impact Iraq's
ability to maintain security. Over the past two years, the size of the
Iraqi security forces has almost tripled—from 250,000 uniformed
personnel to 609,000. With less money in its coffers for salaries, Iraq
must curtail the expansion of these forces.
To read the entire article, click
here. I also wrote about oil prices and Iraq for the
Middle East Times last summer, when the price of oil was around $125 a barrel. To see what I had to say then, click
here.