War, Plunging Oil Prices Send Iraq’s Economy Into Crisis

Plunging oil prices have pitched Iraq into a severe financial crisis as it struggles to combat the Islamic State group, play host to millions of refugees and rebuild cities and towns ravaged by war.

Iraq’s economy is almost completely reliant on oil, which accounts for 95 percent of government revenues. With global prices hovering around $30 a barrel, Iraq has had to draw on foreign exchange reserves to fill a shortfall in the 2016 budget, which anticipated $45 per barrel.

In past years, when oil prices were closer to $100 per barrel, Iraq had attracted foreign investment and rebuilt much of its oil infrastructure after decades of war and sanctions.

“We are now exporting greater quantities than ever before,” said Oil Ministry spokesman Assim Jihad. “But in return the oil revenues have decreased.”

The ministry says Iraq brought in a little over $2 billion in oil revenues last month, down from $3.3 billion in January 2015 and more than $7 billion two years ago, before the IS onslaught. The International Monetary Fund says Iraq is expected to run a deficit of $11 billion in 2016.

The private sector has also suffered. Taha Abdul-Salam, the executive director of the Baghdad Stock Exchange, says share prices fell by an average of 27 percent from 2014 to 2015 due to the drop in oil prices.

Iraq’s Finance Minister Hoshyar Zebari says it will be “a difficult and harsh year for all of us.”

The crisis extends to Iraq’s northern Kurdish region. Many of the Kurdish fighters known as the peshmerga — longtime U.S. allies who have been among the most effective forces battling the IS group — are not being paid, Masrour Barzani, head of the region’s security council, told The Associated Press this week.

Hisham al-Hashimi, a Baghdad-based security analyst, said he expects a similar scenario elsewhere in Iraq, as the central government struggles to pay soldiers and pro-government militias. He said many of the Shiite militiamen who have played a key role battling the IS group could be “laid off.”

“There is not enough money to pay for them,” he said.

Iraq is also grappling with a major humanitarian crisis. The U.N. estimates that more than 3 million people have been forced from their homes since the IS group swept across northern and western Iraq in 2014, capturing the country’s second largest city, Mosul. The government recently said it needs $1.6 billion to respond to the crisis.

The cost of the war will mount even if Iraqi forces continue to advance.

In the city of Ramadi west of Baghdad, which was liberated from IS late last year, entire blocks were reduced to rubble and major streets were no longer recognizable. Similar devastation has been seen in other liberated cities and towns, and a costly reconstruction effort will be needed.

Even before the IS onslaught and the plunge in oil prices, authorities struggled to maintain aging infrastructure and provide basic services like electricity. Years of corruption, mismanagement and war have taken their toll, and half-finished malls and apartment buildings dot the Iraqi capital.

A series of billboards advertise the 2010 groundbreaking ceremony on a luxury apartment complex complete with swimming pools, a cinema, a mall and a hotel. But the signs are now yellowing with age, as unused construction equipment sits beside a fenced-off crater.

Basil Jameel Antwan, an Iraqi economist, said poor management is ultimately to blame for Iraq’s current economic woes. He still describes the economy as “promising,” but says it is in need of a major overhaul, with investment in non-oil sectors like agriculture, industry and tourism.

He laments that “we were unable to rehabilitate (the economy) when we had excellent oil revenues and profits.”

ABCNews