Plunging oil prices below $70 threatens Iraq's economic stability
Shafaq News/Iraq's economy, heavily reliant on oil revenues, is facing mounting pressure asglobal oil prices continue to decline, experts have warned. With crude pricesdipping below the $70 per barrel mark, the country's investment and operationalbudgets are at risk, potentially impacting a wide range of sectors.
"Thedecline in global oil prices below $70 per barrel will directly impact theinvestment and operational budgets for commodities and services and the overalleconomic movement in the country," said Mustafa Hantoush, an economic andfinancial expert. "However, salaries are the last thing that will beaffected, as Iraq can pay salaries for at least three years."
Hantoushexplained that various factors, including the production levels of majoroil-producing nations like the United States and the demand from key consumerssuch as Europe, influence the global oil market. He noted that the US, both aproducer and consumer of oil, is generally comfortable with prices between $50and $70 per barrel, as this range is profitable for its domestic oil companies.
"Europeanpartners of the United States are currently suffering from high fuel, oil, andgas prices," Hantoush added. "Europe is a key partner for the UnitedStates, which is why the latter seeks to stabilize oil prices below $80 perbarrel."
Meanwhile,the Organization of the Petroleum Exporting Countries (OPEC) and its allies,collectively known as OPEC+, aim for higher prices, believing that a range of$75 to $80 per barrel is fair.
Severalfactors contribute to the current decline in oil prices, including slowingglobal economic growth, the increasing adoption of renewable energy sources,and the oversupply of oil in the market, particularly from Russia.
"TheRusso-Ukrainian war is nearing its end, and with no growth in the globaleconomy and inflation on the rise, these factors all contribute to the declinein oil prices below $70 per barrel," Hantoush told Shafaq News.
While Iraqmay be able to sustain its public sector salaries for several years, thedecline in oil revenues could significantly impact the country's investmentplans. Hantoush warned that some projects may be delayed or canceled, similarto previous periods of low oil prices.
"Thebiggest concern remains the need to open up domestic investments in industry,agriculture, tourism, transportation, and the external economy," heconcluded. "To reduce reliance on oil revenues, Iraq must focus ondiversifying its economy and achieving self-sufficiency in areas such aselectricity."
Basimal-Gharibawi, a member of the Iraqi parliament's oil and gas committee,confirmed that OPEC has requested member countries to reduce their output tosupport prices. However, he noted that while this may affect the government'sability to cover budget deficits, it should not impact the funds allocated inthe 2023 budget.
Iraqilawmaker and member of the Parliamentary Finance Committee, Mustafa al-Karaawi,stated that "the budget is built 90% on oil revenues. Any fluctuation inoil prices will have a direct impact on the budget. Therefore, if global oilprices drop, there will be a deficit in implementing the budget."
Speaking toShafaq News Agency, al-Karaawi emphasized that "salaries will not beaffected, as the salary cap is significantly lower than the ceiling set in thebudget. However, the investment budget and the operational budget, particularlyin terms of goods and services, will be directly impacted based on thepriorities set by the government. The country's overall economic activity mayalso be affected, but salaries will be the last to face repercussions."
Regardingthe pricing mechanism for Iraqi oil, Ministry of Oil spokesperson Assem Jihadexplained that "before the end of each month, the ministry's teams conveneto assess market developments. Based on these assessments, Iraqi oil prices areset according to their type, density, and target markets. This pricing is donemonthly, not daily. Oil marketing contracts with international companies arethen concluded following this mechanism."
Jihadfurther told Shafaq News Agency that "market developments, positive ornegative, do not affect Iraq alone but other oil-producing countries and theglobal oil market, which is constantly exposed to geopolitical, economic,health, and security challenges that influence oil prices."
He added, "However,the OPEC+ agreement aims to balance and stabilize global oil markets. OPEC+ hasworked to address numerous challenges and difficult conditions facing theglobal oil markets by taking collective measures to restore the vitality of theoil market."
