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Iraq and Ruin
Collapsing Oil Prices Reveal Iraq’s Fragility

The low price of oil is making it increasingly likely that economic collapse, rather than the advancing black flags of ISIS, will be Iraq’s downfall. As the New York Times reports:

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.

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  • Jim__L

    “The low price of oil is making it increasingly likely that economic collapse, rather than the advancing black flags of ISIS, will be Iraq’s downfall.”

    This seems like a false choice. Why not both?

    • Ellen

      Exactly. Both are likely to happen in Iraq. Likewise, even if the Russians and Iranians can prop up temporarily the Alawite/Hezbollah army that now rules over 25% of Syria in its western part, there is almost no real economy left in that part of the country. The industries have been bombed to smithereens and the skilled workforce plus business families who used to run the key industries have mostly left the country. The business class in Syria was mostly secular Sunnis and Christians, not Alawites.

      There was only a thin layer of Alawite kleptrocracy at the top, skimming off protection money from the business class of Sunnis and Christians, before the war. This is what middle eastern societies are made of; different groups who fill different economic functions. Group identity is what determines a person’s place in society, not individual merit. So, the secular Sunnis and Christians have no reason to want to stay in an Alawite-Shiite dictatorship that emerges from this civil war. Therefore, only external aid based on oil wealth from Iran and Russia can keep the Alawite state (so-called) afloat. The problem is, the collapse in the revenue from oil makes it impossible for the Russians and Iranians to prop up an unviable state on a permanent basis.

      So, Western Syria (ie, the Alawite state) will become just another hunting ground for roaming brigands and militias, mostly Sunni, living off the oil wealth of the Gulf, which won’t run out for quite a while.

      Please note that Israel is surrounded by such unviable states now on ALL fronts: Egypt, Jordan, Lebanon, Syria, and Gaza. Not a one of them is economically viable without continuous inflows of cash from governments to the rulers, and individuals to their families. The only viable economy in that whole region is the Israeli economy, which keeps the West Bank afloat (for its own reasons). It’s not a stretch to imagine that someday, the Israeli government will be the one who reconstructs the historic city of Damascus, while the IDF occupies the territory and maintains order. This is not what Israelis want, but may be the only option for security and stability on the northern border. Ditto for South Lebanon.

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