Page 10 - MEOG Week 11

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Iraq in the crossfire from OPEC+ price war
Iraq
LAST week, MEOG reported on a surpris- ing 3.3% monthly increase in iraq’s exports. This appeared to come mainly on the back of increased bookings from China, which, it was surmised, may have been placed before the impact of the coronavirus became clear.
Competitive pricing and Chinese involve- ment in production ventures may have also con- tributed to this spike.
The average selling price for a barrel of oil exported by iraq was $51.374. Revenues for the month of February amounted to $5,053bn.
A week on, amid the ruins of the failed OPEC+ talks, and we are in a new landscape.
Following the collapse of the OPEC+talks Brent crude was sitting at $33.85 on 14 march – having been $50 as recently as the 5th of the month. The sudden fall in oil prices will inev- itably put a massive strain on iraq’s economy, including a severe budget shortfall that could further undermine the government’s ability to respond to myriad crises.
if Brent crude remains near $30 per barrel, due to the price war between Russia and Saudi Arabia and the economic fallout from the spread of the new coronavirus (COViD-19), iraq is likely to earn less than $3bn per month, given its recent rate of exports – leaving a monthly deficit of more than $2bn just to pay current expendi- tures such as salaries for the public sector, spend- ing for health and education that will result in more social protests.
These started in October, following the demotion of iraq’s counter-terrorism chief, and were extended to include the government’s fail- ure to provide basic services, create jobs and end corruption.
The protests have continued and have also focused on the presence of iran, whom they accuse of complicity in iraq’s governance failure
and corruption.
At the same time iran’s influence over iraq’s
internal affairs has grown steadily since 2003. it has close links to Shia politicians who are part of the ruling elite, and has backed the paramilitary Popular mobilisation force, which is dominated by Shia militias.
The iranian-backed militias have also desta- bilised iraq by using it as a proxy to attack Coa- lition troops stationed there – with tit-for-tat attacks and killings in recent months.
And iraq also has to deal with the uncertain status of Kurdistan and the remnants of the iS caliphate – a veritable cocktail of competing crises.
Oil still dominates iraq’s economy. As of 2018, oil was responsible for over 65% of GDP and 90% of government revenue. Petroleum constitutes 94% of iraq’s exports, with a value of $59.73bn in 2017.
The central government hopes to diversify the economy away from oil, and has had some success: non-oil GDP growth, which was below the regional average from 2014-2016, pushed above the average in 2017.
Despite this, the percentage of government spending going to non-oil investment has con- tinued to decline since 2013 and now stands at only 34%.
iraq will not be the only country facing the breaking storm; Algeria, Nigeria and Angola would appear to be other countries facing a major risk to their main source of income, but as the country with the fifth largest proven crude oil reserves and one of the least diversified econ- omies in OPEC it would appear to be most at risk in an all-out price war.
Last week iraq cut the price of Basrah Light crude for Asian customers by $5 per barrel, mir- roring cuts made elsewhere in the region.™
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w w w . N E W S B A S E . c o m Week 11 18•March•2020