Shafaq News/Iraq's oil exports are vital to its economy, generating approximately 90% ofgovernment revenue and significantly impacting its economic stability. As one ofthe top producers in OPEC, Iraq's oil supply plays a crucial role in the globalmarket, influencing prices and international energy policy.
Financialand economic experts are warning that the ongoing war in Lebanon, and itspotential escalation in the region, could severely disrupt the export of oiland gas from Iraq and the Gulf states through key strategic waterways such asthe Strait of Hormuz and Bab al-Mandeb.
Suchdisruptions could lead to the collapse of global supply chains that rely on theMiddle East, triggering a global crisis in oil markets.
RentierEconomy
A rentiereconomy refers to an economic system in which a significant portion of nationalincome is derived from the rent of natural resources, rather than fromproductive activities like manufacturing or agriculture.
Given thatIraq's economy is predominantly oil-based and heavily reliant on dollarrevenues, any disruption to the broader economic framework will directlyinfluence the value of the Iraqi dinar against the dollar, potentially drivingup the cost of goods and services shortly, according to economic experts.
For severalconsecutive days, the exchange rate of the US dollar against the Iraqi dinarhas exceeded 150,000 IQD in the markets of Baghdad and Erbil. On Monday, theopening prices of Al-Kifah and Al-Harithiya central stock exchanges in Baghdadrecorded an exchange rate of 151,650 IQD per $100. In Erbil, the dollar alsosaw an increase in exchange offices, with the selling price reaching 151,450IQD.
Economicresearcher Ahmed Eid explained that "the rise in the dollar's exchangerate is not directly related to the war in Lebanon, as there is no significantdirect trade between the Iraqi and Lebanese markets. However, certain factorstied to the ongoing events in Lebanon, such as the increasing demand fordollars, are contributing to the upward pressure on the currency."
Who Demandsthe Dollar?
Eidexplained to Shafaq News Agency that the increased demand for dollars "isdriven by individuals and groups connected to the ongoing events in Lebanon.These parties are preparing to leave Iraq with their families in case Israelbegins targeting sites, figures, or factions within Iraq."
Additionally,according to Eid, there is rising demand in the parallel market due toincreased illegal imports, either through direct transfers or currencysmuggling. "This is primarily for imports from sanctioned countries likeIran and Syria, which bypass the scrutiny of the US Federal Reserve and the USTreasury."
Eid furthernoted that the Iraqi market is fragile and highly susceptible to regionalsecurity and political developments. "The rise in the dollar could lead tohigher prices for goods and services in the near future unless the market isregulated and those exploiting the current situation are penalized."
Meanwhile,economic expert Abdulrahman al-Sheikhly stressed that political and socialunrest in any country inevitably affects its economy. Since Iraq relies on arentier system, with its income largely dependent on oil and dollar revenues,any disruption in the broader economic framework will impact the value of thedollar, either driving it up or down.
Al-Sheikhlytold Shafaq News Agency, "two weeks ago, there was already a slightincrease in prices due to a shortage of dollars offered by the Central Bank ofIraq (CBI). The bank had been selling limited cash amounts rather than allowingfor external transfers, causing a minor price increase even before theescalation of events in Lebanon."
As demandfor dollars increases, particularly from those seeking to secure their assetsamid uncertainty, a parallel market emerges that invites exploitation.
Exploitation
Al-Sheikhlycontinued, "Following the escalation in Lebanon, many traders areattempting to exploit the security, military, and political turmoil across theregion, including Iraq. The spread of rumors suggesting imminent strikes onvital areas in Iraq may hinder the flow of imported goods to consumers."
He added,"Some traders have started doubling the prices of imported goods,particularly essential items that people need daily. This is viewed as an opportunityfor certain traders to reduce supply and raise prices, which is an unacceptableform of exploitation."
On the otherhand, financial and banking expert Mustafa Hantoush shed light on how theconflict in Lebanon affects Iraq’s economy. He explained that "Iraq doesnot rely on essential supply chains to and from Lebanon, so economically,Iraq’s economy and trade balance are unlikely to be significantly impacted. Aslong as global supply chains remain intact, prices in Iraqi markets should notincrease due to competition."
Hantoushfurther added to Shafaq News Agency, "Iraq also has substantial dollarreserves and a steady flow of oil revenue in US dollars, which ensures that thelocal market’s demand for the currency can be adequately met. Therefore,there’s no need for citizens to be concerned about exchange rates or to feelcompelled to hoard dollars."
However, theoverall market stability remains precarious, especially if regional tensionscontinue to escalate, raising concerns about a potential global crisis.
GlobalCrisis
Hantoushnoted, "However, if the war in the region continues without solutions, itcould expand. Consequently, any disruption in the export of oil and gas fromIraq and the Gulf through the Strait of Hormuz and Bab el-Mandeb could lead toa global crisis in oil markets, making exports difficult and triggering asignificant spike in prices."
Heemphasized, "At that point, most global supply chains to and from theMiddle East would collapse, which must be avoided at all costs."
Thepotential ramifications of a global crisis extend beyond just Iraq, making itimperative for stakeholders to resolve the ongoing conflict.
In recentdays, fears have escalated regarding the potential for the conflict betweenIsrael and Hezbollah to escalate into a full-scale war, particularly followingIsrael's aggressive attacks on various areas in Lebanon, in addition to theassassination of Hezbollah’s Secretary-General Hassan Nasrallah.
Meanwhile,Lebanese Health Minister Firas Abiad announced, on Sunday, that there have been1,640 fatalities, including 104 children and 194 women, along with 8,408injuries since the onset of hostilities between Israel and Hezbollah nearly ayear ago.