Along with securing salaries, what is the impact of falling oil prices on Iraq?
Shafaq News/Iraq's parliamentary finance committee has confirmed that the salaries ofemployees and retirees are secured even if oil prices fall below $70 per barrel.However, economists caution that continued declines in oil prices couldexacerbate the budget deficit, necessitating the exploration of new fundingsources beyond oil.
Thisassurance follows oil prices stabilizing at an eight-month low on Monday, asrecession fears in the United States, the world's largest oil consumer, wereoffset by concerns over supply disruptions due to escalating tensions in theMiddle East, the largest oil-producing region.
The budgetcalculations for Iraq for the years 2023, 2024, and 2025 are based on an oilprice of $70 per barrel. "This is lower than the current market prices,and with Iraq exporting approximately 3.5 million barrels of oil daily—its OPECquota—this basis has projected Iraq's oil and non-oil revenues to be 147trillion dinars. This revenue is sufficient to cover the salaries, which amountto around 60 trillion IQD ($400 million)," said parliamentary financecommittee member Moeen Al-Kadhimi.
Al-Kadhimitold Shafaq News Agency, "Therefore, there is no issue in securingsalaries for employees and retirees. As long as global oil prices do not dropbelow $70, there is a capability to provide citizen salaries. However, if thereare global shifts, such as the end of the Ukraine war or stabilization in Gaza,which could lower oil prices below $70, this would impact the general budget.Nonetheless, there remains ample room to provide salaries without issue."
He alsohighlighted that the current problem lies in the liquidity of the Iraqi dinardue to delays in remittances from the Central Bank, controlled by the USFederal Reserve.
Economist DiaaAl-Mohsen emphasized that Iraq, as an OPEC member, cannot unilaterally decideto cut oil prices, which are influenced by supply, demand, and geopoliticalfactors, noting that "since the start of 2024, Iraq has been selling oilat over $82 per barrel, providing a surplus of at least $10 per barrel abovethe budgeted price for the first seven months. Thus, Iraq has not sold oilbelow $70 so far.
Al-Mohsenclarified, "The budget deficit is not due to low oil prices or production,but from increased budget allocations for salaries and investment expenditures.Concerns about salary payments are unfounded given the Central Bank's reservesexceeding $115 billion, which secures the local currency. Furthermore,geopolitical tensions in the Middle East could spike oil prices, benefitingIraq."
In turn, economistAbdulrahman Al-Sheikhli dismissed concerns linking oil price drops to salarypayments, focusing instead on the potential budget deficit if the price droppersists. "Since the budget's preparation, we advised setting the oilprice at no more than $65 per barrel, but the decision was made at $80,exacerbating the issue," he stated.
Al-Sheikhliurged increasing oil exports to compensate for revenue shortfalls and exploringnew revenue sources from industrial, agricultural products, and tourism,positioning Iraq as an attractive destination for both general and religioustourism.
