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.
May 27, 2009 09:43 PM Link http://counterterrorismblog.org/2009/05/the_global_economic_crisis_and.php