Ten years after the U.S invasion Iraq continues to soldier on. The country has significant potential, yet remains politically unstable.
It has been ten years since the U.S. invasion of Iraq in 2003, which was meant to free the Iraqi people of a tyrannical dictator and finally bring prosperity to a country filled with economic potential and untapped resources. Today, after being subjected to extensive destruction, Iraq once again plays a critical role in global oil supplies. With an estimated output of 3.2 million barrels a day, Iraq’s oil sector is booming. The International Energy Agency (IEA) predicts that Iraq’s oil production should double by the year 2020, and increase to 8.3 million barrels a day by 2035, which would make it the world’s fourth largest oil producer. These economic indicators sound quite promising, but Iraq remains poor. According to the International Monetary Fund (IMF), Iraq’s GDP per capita barely reached $3,500 last year, which is significantly less than other oil exporting countries in the Middle East. But despite its capabilities as an economic power in the region, Iraq’s polarizing politics and path dependent old policies are hindering its progress.
Political stability serves as a prerequisite for economic growth. Within Iraq, the lack of political consensus is intertwined with sectarian, ethnic, and even tribal tensions, thus having a severe impact on the economy. This lack of consensus is primarily demonstrated with the Oil Law that has been sitting idle in the legislature since 2007, and the government’s insistence on playing a decisive role in the country’s economy ten years after the removal of Saddam Hussein. The political deadlock in Iraq can best be explained by looking into the Sunni-Shiite rivalry, government corruption and Baghdad’s conflict with the Kurdistan Regional Government.
The Sunni-Shiite rivalry has been amplified by the U.S. invasion in 2003, specifically in its violent tendencies. Recently, however, it has taken a toll on Iraq’s federal government. On December 19, 2012, the country’s Sunni vice president and member of Iraq’s main opposition group, Al-Iraqia, Tarek El Hashemi, fled to Turkey following an arrest warrant issued by the government on charges of organizing terror attacks on officials. In March 2013, both the finance and agricultural ministers resigned due to demonstrations across Iraq’s Sunni-dominated cities of Mosul, Samarra, Kirkuk, and Anbar. The most recent political crisis mainly stems from these Sunni demonstrations against Prime Minister Nuri al-Maliki, a Shiite, as they view his decisions as an infringement on their rights. Many Iraqis believe that Maliki’s decision to detain thousands of Sunnis on terrorism-related charges was designed to consolidate support among Shiite hardliners. However, this strategy has essentially backfired, since charismatic Shiite cleric Muqtada al-Sadr has been initiating anti-government rallies. These violent feuds and polarizing politics have severely influenced oil projects in the south, which is the region with the most oil resources in Iraq.
In addition to deadlocked politics, corruption in the south is causing trouble for international oil companies and their projects, which are set to provide Iraq with most of its economic growth. Delays and mishaps have significantly affected the progression of all the mega-projects, with a lack of transparency on the government’s part, an inability to process visas for non-Iraqi workers and frustrating delays in customs when importing parts and materials from abroad. There is an overall lack of efficiency in infrastructure construction to support such large-scale projects, and local issues, especially concerning the poor in surrounding areas, also affect the efficiency of projects in the south. Government corruption and lack of transparency have caused an unsustainable partnership between the Iraqi government and international oil companies like ExxonMobil. Iraq has been slow in paying for the oil these companies produce, despite the new export capacity near Basra, and the government has failed to rebuild its crumbling infrastructure and pipelines, which decrease capacity by almost half. These issues have discouraged oil companies from continuing their projects in the south, as demonstrated by ExxonMobil, which has expressed its desire to sell its position in one the projects in the West Qurna oilfield and choosing instead to invest in the semi-autonomous region of Kurdistan.
The Kurdistan Regional Government (KRG) is responsible for this region in the north of Iraq, which has ultimately created a two-track oil industry and an ongoing dispute over borders with Baghdad. Last year, ExxonMobil decided to invest six blocks in Kurdistan, which possesses an estimated 11 billion barrels of oil reserves. Baghdad considers any production-sharing contracts offered by the KRG to ExxonMobil illegal, but the international oil company went ahead with the deal anyway, even though it was risking its 60 percent operating share in West Qurna-1 in the south of the country. According to the Iraq Energy Institute, Kurdistan as a region is ahead of Iraq in terms of commercial development. Power supplies and infrastructure are more developed, security is efficient and corruption does not stifle productivity, especially in terms of visas, imports, and property laws. Baghdad remains opposed to the KRG’s two-track oil industry perspective, claiming that exports will always remain the responsibility of the federal government. However since the Oil Law is stuck in the legislature, the KRG argues that it has not broken any laws.
For the new Iraq, the key to unlock its tremendous regional capacity as both an economic and political powerhouse is to allow its economy to thrive. The worsening economic environment provides an opportunity for the Iraqi government to become more accommodating towards the KRG and build cooperation between Sunnis and Shiite. Since Maliki’s government is sustained by oil revenue, if this vital source of income dries up because of corruption, violence and inefficiency then so will support for Maliki. The prime minister needs to work on improving the economy and increase investment by engaging in a national dialogue, offering foreign oil companies more favourable terms to facilitate investment, specifically in Iraq’s infrastructure, and finally reach a comprehensive deal regarding the oil law, which has been idle in the legislature since 2007. Once the political deadlock is resolved through dialogue, accommodation, and, of course, an increase in security measures, Iraq will gain the faith of investors and will finally be able to move forward.