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OPEC’s second-largest producer, Iraq, has been grappling with street protests for months and the coronavirus outbreak for a few weeks, and now it faces another tough test for its finances—the oil price crash will likely force heavily-oil-dependent Iraq to suspend new infrastructure and energy projects.
The OPEC producer may also have to resort to international borrowing to make sure it can pay salaries to public servants after oil prices collapsed to half the price Baghdad had planned to budget this year, Iraqi lawmakers and officials told Reuters.
Iraq, which relies on oil revenues for 95 percent of its budgetary income, is one of the least diversified economies in the Middle East. It will likely have to enforce strict austerity measures after its fellow OPEC member and the cartel’s de facto leader, Saudi Arabia, launched an all-out oil price war with Russia, after the former allies abruptly ended the OPEC+ production cut deal last Friday.
“The oil price collapse ... means the deficit will be doubled and the only choice left for Iraq is to resort to international creditors,” Mudhhir Salih, an economic advisor in the office of Iraq’s prime minister, told Reuters.
According to an analysis of Iraq Oil Report of official Iraqi export data, should Brent Crude prices stay at around US$30 a barrel, Iraq’s revenues would be less than US$3 billion a month, which is US$2 billion short of the sum Iraq needs just to pay its current expenses.
The oil price war will hurt the fiscal revenues of the oil producers in the Persian Gulf, including the Saudis, credit rating agency Fitch said earlier this week and warned that a new wave of sovereign rating downgrades could be in the works if the oil slump continues.
The oil price war and the price crash will impact all economies in the Middle East, but Iraq’s precarious position even before the price collapse could make it one of the biggest losers in the OPEC-Russia standoff.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.