Iraqi Economy Faces New Challenges Amid Oil Price Fluctuations

Baghdad—The Iraqi economy is poised to navigate a precarious path due to recent global oil price fluctuations. With prices declining significantly, the nation faces a heightened financial crisis that jeopardizes economic stability and the ability to meet the payroll for both employees and retirees.

Oil prices are currently hovering near their lowest levels in six months, affected by the customs tariffs enacted by the U.S. administration. West Texas Intermediate crude has dropped to approximately $67 per barrel, marking a 5% decrease in recent trading sessions, while Brent crude has closed below $70.

Concerns Over Salary Disbursements

In light of these developments, economists have raised alarms regarding the government’s capacity to pay salaries if the financial crisis persists without comprehensive solutions. Dwindling oil revenues and a growing budget deficit hinder the government’s ability to secure the necessary liquidity to cover essential expenses, chiefly salaries for employees and retirees.

Economist Nasser Al-Kinani has indicated that "oil revenues will not be adequate to cover the salaries of employees, retirees, and social welfare." He elaborates that "the cost of extracting oil exceeds $17 per barrel, implying that the effective revenue stands at less than $50 per barrel, after accounting for production costs."

Al-Kinani further projects that addressing the ballooning financial deficit, which may reach 90 trillion dinars by 2025, will likely require both internal and external borrowing by the government. He cautions that "demand for the issuance of financial bonds to finance the deficit has been markedly low," and warns that "continuing current economic policies without structural reforms will exacerbate financial pressures on the state."

Lack of Strategic Planning

Economist Hammam Al-Shamaa emphasized that the Iraqi government currently lacks a clear strategy to address declining oil prices. He points out that "the government has failed to implement a long-term vision for mitigating expected declines in oil revenues," noting that the inclusion of Kurdistan oil in Iraqi exports will have a minimal impact on compensating for low prices and revenues.

Al-Shamaa argues that "falling oil revenues may only be sufficient to cover salaries and social welfare but will not suffice for other expenses," stressing the importance of "reducing government expenditures in non-essential areas, such as private and maintenance costs, while prioritizing productive projects."

Challenges in the Oil Sector

Concerning the Iraqi oil sector, economist Nabil Al-Marsoumi warns of "significant backwardness" in this industry, highlighting contradictions between the policies of importing and exporting oil products. Al-Marsoumi notes that "in 2024, Iraq exported about 12.91 million tons of oil products, predominantly black oil, while importing around 2.48 million tons of gasoline."

He adds that "black oil prices in the global market are lower than crude oil prices, compounding the challenges in the oil refining sector." Despite the Karbala refinery becoming operational, Iraq has not achieved self-sufficiency in gasoline due to ongoing inefficiencies in production and refining.

Analysts suggest that the financial crisis stemming from falling oil prices could threaten the stability of Iraq’s national economy, unless the government undertakes effective measures to diversify revenue sources and rein in expenditures.