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Iraq managed to collect a lot of revenues from oil exports last year due to higher prices, but the Iraqi economy remains heavily reliant on oil income, which represents a massive 95% of the country’s federal budget revenue.
Higher oil prices led to a budget surplus for Iraq, OPEC’s second-largest producer after Saudi Arabia, last year, according to the financial statements of the federal government reported by news outlet Shafaq News.
Oil revenues accounted for an overwhelming 95% of Iraq’s federal budget, the data showed, raising renewed concerns among analysts that the Iraqi economy is too dependent on oil.
Iraq has just announced the signing of several deals with foreign companies as part of plans to boost both crude oil and natural gas production considerably. Iraq is OPEC’s second-largest oil producer, pumping 4.5 million barrels every day. In previous years government officials have said production capacity could grow to 5 million bpd and even 6 million bpd , but little has been done to advance these plans.
Gas production growth appears to be especially important because right now, Iraq is heavily reliant on neighbor Iran for its gas needs, which puts it into a vulnerable position.
Apart from plans to significantly boost oil and gas production, the federal government should also look to start diversifying the economy away from oil to secure growth and employment even when oil prices crash, analysts say.
Iraq’s oil revenues were estimated at around $105 billion last year, according to the federal government, due to the hike in oil prices in the spring after the Russian invasion of Ukraine.
Despite the budget surplus for last year, Iraq’s economy continues to face major challenges, including high unemployment rates, runaway inflation, and too little diversification away from fossil fuels.
“Iraq’s economy remains in the grip of a self-perpetuating cycle of fragility,” the International Monetary Fund (IMF) said in a recent report on the country.
“The absence of meaningful reforms, in turn, has held back economic development and reinforced dependence on oil—a critical vulnerability in a world that is fighting climate change,” according to the IMF.
By Charles Kennedy for Oilprice.com
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Charles is a writer for Oilprice.com