Economic experts: Disruption of oil supplies threatens the Iraqi budget

Shafaq News / The geopolitical tensions and ongoing disruptions in the Middle East, coupled with the Houthi movement's continued attacks on oil tankers in the Red Sea region, pose a threat to the Iraqi economy.

Iraq relies on oil to finance public expenditures. However, the country has become an unwelcoming environment for investment despite its urgent need to revive şts economic wheel due to escalating conflicts between armed factions, the United States, and Iran within its borders, according to experts.

Iraqi Oil Minister, Hayyan Abdul Ghani, confirmed on Thursday that Iraq's oil exports have not been affected by the recent attacks on ships in the Red Sea. He stated during the World Economic Forum in Davos that around 90% of Iraq's oil exports go to Asia and, therefore, do not need to pass through the Red Sea.

It is noteworthy that the Iraqi government's revenues exceeded 121 trillion dinars in the federal budget during the first 11 months, according to data released by the Ministry of Finance on Wednesday. The Ministry emphasized that the contribution of oil to the budget has risen to 93%.

Furthermore, according to data released by the Ministry of Finance in January, oil continues to be the primary revenue source for Iraq's general budget, accounting for 93%. This highlights the fact that Iraq's economy remains heavily reliant on oil as the mainstay of the country's overall budget.

Continuous flows

The oil trade balance of Iraq primarily focuses on Asian countries, constituting over 75% of the country's oil exports. The export lines to Iraq and the Gulf region, whose oil trade is predominantly linked to Asia, accounting for 90% of their oil exports, remain stable, flowing towards East and South Asia, according to the financial advisor to the Iraqi Prime Minister, Mudhhir Mohammad Saleh.

Saleh mentioned that these flows are met with import flows that are also stable so far. These are predominantly commercial flows that are largely outside the current high-risk maritime threat zones.

He continued, "However, this does not prevent a relative impact on the volatility of insurance and shipping costs, which have seen direct and indirect increases linked to the security tensions in the Bab el-Mandeb Strait due to the Gaza conflict."

He explained, "Iraq enjoys high trade flexibility as it is surrounded by a wide regional group with diverse maritime trade connections to neighboring countries."

"The country's essential reserves of food, necessary goods, and durable commodities are in a reassuring state. Iraq's capabilities in financing foreign trade cover about 15 months of imports, reflecting the strength and efficiency of Iraq's foreign reserves. It is a strategic hedge that reinforces our country's position against any potential trade risks due to geopolitical situations and possibilities."

Notably, the attacks by the Houthi rebels in Yemen on ships in the Red Sea have forced many companies to divert their sailing routes away from the Red Sea and transit around the Cape of Good Hope, increasing travel times and costs.

The attacks, carried out by the Houthis, who claim to support the Palestinians, target a route representing about 15% of global shipping traffic and acts as a vital channel between Europe and Asia.

Moreover, oil exports via ships significantly impact the Iraqi economy, as it heavily relies on oil to finance government expenditures. According to economic researcher Ali Abdul-Kadhim, if the transportation of oil via ships becomes difficult or problematic, it will adversely affect oil exports, leading to a shortage in dollar revenues from oil. This will, in turn, impact the general budget, increasing its deficit further.

Abdul-Kadhim pointed out that the two main countries importing Iraqi oil are China and India. Therefore, if oil revenues are affected, the Iraqi government will struggle to meet budgetary expenses.

Additionally, regarding the incident of Iran seizing a commercial ship flying the Tanzanian flag within Iraqi waters, he explains that "such incidents impact the Iraqi economy, as this tanker was carrying oil from Basra."

He emphasized the necessity for Iran to intervene in resolving the current crisis. "Iraq is the best market for Iran to sell its products, and continued disruptions will harm its economic sector, especially if the private sector and traders in Iraq turn to other countries for imports."

Investment-repellent environment

The current security situation in Iraq, marked by escalating tensions between armed factions, the US, and Iran within Iraq, negatively affects the economy, transforming it into an unwelcoming environment for both foreign and domestic capital," stated economic researcher Omar Al-Halbousi.

Al-Halbousi explained that "attracting investment requires security stability, but this escalation leads to investors hesitating to enter Iraq or completely abstaining from investing at a time when the country urgently needs to attract foreign investors to stimulate the economy."

He continued, "the security escalation between factions, the US, and Iran coincides with the Baghdad International Fair, which witnessed significant international attendance. This escalation is intentional, sending a message to participants in the fair, especially global companies, not to come and invest in Iraq."

"Especially since the fair was the best among its previous editions in terms of organization, international participation, and public attendance. However, there are countries that prefer Iraq to remain a market for their goods without stimulating investment in it."

He emphasized that "these attacks cause Iraq significant economic losses, as they result in the loss of current and future investment opportunities. Attracting investments is complex and challenging in an unstable security situation, making Iraq lose a crucial economic element it desperately needs."