Iraqis seeking to withdraw money from banks are told there is not enough cash. Hospitals in Baghdad are falling back to the deprivation of the 1990s sanctions era, resterilizing, over and over, needles and other medical products meant for one-time use.In the autonomous Kurdish region in the north, the economic crisis is even worse: government workers — and the pesh merga fighters who are battling the Islamic State — have not been paid in months. Already, there have been strikes and protests that have turned violent.These scenes present a portrait of a country in the midst of an expensive war against the Islamic State that is now facing economic calamity brought on by the collapse in the price of oil, which accounts for more than 90 percent of the Iraqi government’s revenue.
What makes this collapse in revenue especially ruinous for the Iraqi state is that for years, oil money has fed a political system that relies on patronage and ballooning government salaries for the bureaucracy, and a generous program of subsidies and food rations for the citizenry. Almost 8 million people in this country of 33 million receive a salary or pension from the state, and the state doles out “fuel subsidies and monthly food rations” to every Iraqi.The Iraqi government bet on its ability to buy off its restive population with oil wealth. Substantial changes to this system would be difficult to implement in any circumstances, no less when what’s left of Iraq is currently beset by sectarian division, official corruption, and an ongoing war for its existence. If the government is forced to withdraw the fragile prop to its legitimacy (state subsidies), additional internal political instability could compound the other threats Iraq faces.