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 of employees and retirees are secured even if oil prices fall below $70 per barrel. However, economists caution that continued declines in oil prices could exacerbate the budget deficit, necessitating the exploration of new funding sources beyond oil.

This assurance follows oil prices stabilizing at an eight-month low on Monday, as recession fears in the United States, the world's largest oil consumer, were offset by concerns over supply disruptions due to escalating tensions in the Middle East, the largest oil-producing region.

The budget calculations for Iraq for the years 2023, 2024, and 2025 are based on an oil price 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 OPEC quota—this basis has projected Iraq's oil and non-oil revenues to be 147 trillion dinars. This revenue is sufficient to cover the salaries, which amount to around 60 trillion IQD ($400 million)," said parliamentary finance committee member Moeen Al-Kadhimi.

Al-Kadhimi told Shafaq News Agency, "Therefore, there is no issue in securing salaries for employees and retirees. As long as global oil prices do not drop below $70, there is a capability to provide citizen salaries. However, if there are 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 also highlighted that the current problem lies in the liquidity of the Iraqi dinar due to delays in remittances from the Central Bank, controlled by the US Federal Reserve.

Economist Diaa Al-Mohsen emphasized that Iraq, as an OPEC member, cannot unilaterally decide to cut oil prices, which are influenced by supply, demand, and geopolitical factors, noting that "since the start of 2024, Iraq has been selling oil at over $82 per barrel, providing a surplus of at least $10 per barrel above the budgeted price for the first seven months. Thus, Iraq has not sold oil below $70 so far.

Al-Mohsen clarified, "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 reserves exceeding $115 billion, which secures the local currency. Furthermore, geopolitical tensions in the Middle East could spike oil prices, benefiting Iraq."

In turn, economist Abdulrahman Al-Sheikhli dismissed concerns linking oil price drops to salary payments, focusing instead on the potential budget deficit if the price drop persists. "Since the budget's preparation, we advised setting the oil price at no more than $65 per barrel, but the decision was made at $80, exacerbating the issue," he stated.

Al-Sheikhli urged increasing oil exports to compensate for revenue shortfalls and exploring new revenue sources from industrial, agricultural products, and tourism, positioning Iraq as an attractive destination for both general and religious tourism.