Iraq lacks the money to pay its current bills. The financial crisis threatens to destabilize the government and encourages conflict among armed groups. The crisis also strengthens Iraq’s long-standing rival, neighboring Iran.
There are plenty of reasons for this: the economy is suffering from the corona pandemic, and oil and gas prices have plummeted. After all, the Iraqi government generates 90 percent of its income from the sale of fossil fuels. Due to the lower prices, government employees could not be paid for months last year. Thus, the government was forced to devalue the Dinar – for the first time in decades – which has led to a sharp increase in prices. This is fatal for such an Import-dependent country.
Last month, neighboring Iran stopped supplying electricity and natural gas because the Bills were not paid. Large parts of Iraq remained in the dark for hours every day.
Part of the problem is that Iraq cannot transfer money to Iran because of the US sanctions policy. In exchange for electricity and natural gas, the country exports food and medical goods. According to the Iranian government, Iraq’s debt has now grown to over five billion US dollars. Abdul Hussein al-Anbaki, economic adviser to Iraqi Prime Minister Mustafa al-Kadhimi, told The New York Times: “Iran is also facing an economic crisis, and we cannot buy Gas without paying.“To make matters worse, about three billion US dollars have been frozen in an Iraqi Bank because Iraq is having trouble complying with US sanctions against Iran.
40 percent of all wages from the state
The crisis does not come as a surprise. The government’s wage and pension costs amount to about $ 5 billion per month. In contrast, revenues from the oil business of 3.5 billion. And the reserves are slowly running out. The International Monetary Fund has also noticed this, calling on the Iraqi government to step up controls and fight corruption. But this is likely to be difficult in a system that, thanks to oil revenues, has been indiscriminately awarding ministries to the various political factions for 18 years, which in turn can create as many Jobs as they see fit. In this way, the number of public service jobs has tripled since 2004. Economists assume that 40 percent of the country’s labor force is dependent on the government. Now the financial crisis could put a stop to this corruption-ridden clientele economy.
Consequences of war, corruption and incompetence
But there is also danger from the various armed militias in Iraq, which are trying to gain control over the ever scarcer resources. The fact that one of the largest oil-producing countries is unable to supply its population with sufficient electricity is a Symptom of a dysfunctional government, which at the end of last year started numerous large demonstrations. In addition, the energy infrastructure has suffered massively from the three wars since the 1980s. Several refineries and power plants have been destroyed, and since the US-led coalition forces invaded Iraq in 2003 to overthrow Saddam Hussein, corruption and incompetence have prevented the rebuilding of power supplies in Iraq.
Although the country practically floats in oil, most of the power plants are operated with natural gas. Although Iraq has huge gas reserves, it has neglected the necessary infrastructure. That is why the country is dependent on imports from the neighboring state of Iran, which has become much more difficult due to the Trump administration’s sanctions against Iran.