BAGHDAD — The latest plunge in oil prices has dealt a heavy blow to Iraq’s stagnating economy, threatening the new government’s ability to rebuild after the war with the Islamic State group and provide basic services to areas roiled by recent protests.
Brent crude oil, used to price international purchases, briefly rose above $85 a barrel in October but has since plummeted to less than $55 — a nightmare for a country like Iraq that derives 95 percent of its revenue from oil exports.
A $111.9 billion draft budget sent to Parliament in October projects crude exports of 3.8 million barrels per day to be sold at $56 per barrel. The bill, which includes a 23 percent increase in spending, would leave a deficit of $22.8 billion.
But that won’t even begin to address the colossal challenge of reconstruction after years of war. Some 1.8 million people have yet to return to their homes, according to the United Nations. Mosul, the country’s second largest city, lies partly in ruins, as do many other cities, towns and villages once held by IS militants.
Iraq’s Planning Ministry estimates the country needs approximately $88 billion for reconstruction. In February, donors at a Kuwait summit pledged $30 billion in loans and investments to finance a portion of the bill, but little progress has been made to fulfill the pledges.
In Iraq’s oil-rich south, meanwhile, which was spared from the war’s devastation, protests have erupted in recent months over unemployment and poor public services. Rolling power outages have been a nationwide problem going back to the U.S.-led invasion in 2003, and in the south the tap water is undrinkable.
“We were surprised by the plunging oil prices and we have fallen into a big problem,” said lawmaker Haneen al-Qado, who chairs Parliament’s Economy Committee. “The government is not in an enviable position.”
Iraqis elected a new government earlier in 2018, but it is dominated by the same bickering political factions that have governed the country for the last 15 years. Lawmakers have rejected the draft budget, calling for a new one that would estimate an even lower oil price and allocate even more funds for public investments.