Iraq on track to economic collapse from coronavirus

Iraq recorded 547 cases of coronavirus and 42 deaths early Monday morning, according to Worldometers, the website that is tracking the evolution of the pandemic globally. The outbreak in the country has thus added to the countless problems looming over it, in all areas: political, social and economic. At this point, we should remember that the demonstrations began last October, basically for three reasons: ungovernability, with an Executive in office for the last three months; interference by third countries in internal affairs, especially Iran and the United States; and the deterioration of the economic situation.

The latter area is being particularly affected by COVID-19. Iraq depends on oil for its survival. Black gold is the country's main source of income, representing up to more than 90% of the total, according to data from the United Nations (UN). Currently, about 4.6 million barrels per day (bpd) are produced, making it the second largest producer for OPEC (Organization of Petroleum Exporting Countries). The profits generated by this amount are used to pay, for example, seven million people, including public salaries in civil and military institutions, pensions or unemployment benefits.

Last February, for example, with a selling price of $51 per barrel, Iraq earned a revenue of $5 billion. However, in the last month, an open war between Saudi Arabia and Russia, along with other factors, has caused the price of the barrel to drop to less than $30, compared to $60 at the end of 2019. This, no doubt, "has dealt a severe blow to the oil economies ... and Iraq seems poised to take the biggest hit," the executive director of the International Energy Agency (IEA), Fatih Birol, warned in The New York Times.

To try to minimize the impact, three days ago, on March 27, the Iraqi government sent a proposal to all international oil companies asking them to reduce the budgets of active oil fields by 30%, according to Reuters. This would allow Baghdad to pay less to foreign companies for the exploitation of their services, at least during the first six months of the year. "International companies that develop Iraqi oil fields do so under service contracts and are paid a fixed fee in US dollars for their oil production," Oil Price explained.

"We still do not have budget allocations for 2020 and the decline in oil prices has made the situation worse. That's why we need foreign contractors to do their best and reduce expenses and also defer their fees," explained then an official from the state-owned Basra Oil Company. At the time of going to press, no response had yet been received from international companies operating in the country, such as Exxon Mobile, Kuwait Petroleum Corp or Saudi Aramco, the world's leading oil company and the most profitable company in 2019. The latter has revealed that they are considering reducing capital expenditure to $25-30 billion in 2020, compared to $32.8 billion in 2019.

Already on 14 March, the Iraqi government's economic affairs adviser, Mazhar Mohammad Saleh, warned that the country had lost "half its financial income" with the fall in oil prices, in a statement gathered by Al-Monitor. This publication also explains that according to the draft budget for 2020 that the Executive -let's remember, in function- proposed and expects to vote in Parliament, the amount amounts to 135 billion dollars, while a deficit of 40 billion is estimated. The problem arises because this was calculated with oil prices at 56 dollars per barrel. With the loss of half of the value, the economic solvency is deeply compromised.

Another expert, Issam al-Jalabi, who was Iraq's oil minister from 1987 to 1990, also said that the nation "will lose billions of dollars due to the loss of huge oil revenues, which will affect the provision of services, medicine and food, while the country needs all available funds to deal with the COVID-19 outbreak.

"Coronavirus outbreak worsens perfect storm of crisis in Iraq," headlines Arab News. Expert Nicholas Heras of the Institute for the Study of War war warns that the country "is on the verge of melting" and becoming "a failed state". His argument is as follows: "Iraqi state institutions were already collapsing before the fall in oil prices, and Iraq's health infrastructure is too dilapidated to handle a large increase in COVID-19 cases. Other reasons that would lead to the nation's full-blown crisis are the lack of political leadership, just when it is most needed - "the ruling parties have been unable to agree on a new prime minister, leaving the government completely in limbo" - or corruption, which has consumed the public administration virtually since 2003, following the US invasion. 

In this sense, it should be noted that Iraq has also become the battleground of the confrontation between Washington and Tehran. Both superpowers have exchanged numerous offensives and counteroffensives on Iraqi territory, causing significant material damage and, on occasion, personal injury, especially to soldiers or contractors operating the country's military bases. This conflict has led to a major security crisis, which in turn has been exacerbated by the important signs of the resurgence of Jihadist organisations such as Daesh in the nation, which know how to take advantage of the chaos to achieve their objectives.