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Baghdad faces mounting pressure

24 May 2024

Commentary
John Bambridge
Analysis editor

The role of Iraqi Prime Minister Mohammed Al Sudani is becoming an increasingly unenviable one as Iraq wrestles with a combination of political turbulence, weakening growth and a declining security situation.

On the political front, the potential return to frontline politics by Shia leader Moqtada Al Sadr under the rebranded banner of the National Shiite Movement appears likely to undermine the incumbent Al Sudani by once again dividing the Shia base. While the next national election is not due until October 2025, Al Sadr is a vocal political figure in Iraq whose opposition could cause substantial trouble for Al Sudani in the interim.

In the north, the Kurdistan Democratic Party (KDP) is threatening to sit out long-overdue regional parliamentary elections over a Federal Supreme Court decision that threatened to diminish the influence of ethnic minority groups that have traditionally aligned themselves politically with the KDP. The dispute promises to deepen the political chaos in the north.

On the economic front, weaker oil prices alongside the impact of the Opec-led production cuts are set to drive Baghdad deeper into the red in 2024. Also contributing is Al Sudani’s expansionary 2023 budget, which laid out two years of higher spending, including changes to public sector hiring practices that will drastically increase the country’s wage bill. The latter move, while likely to be politically popular, is expected to raise the cost of salaries and pensions from 15% in 2022 to 25.8% of GDP by 2025. 

This comes at a time when Baghdad has laid out an economic vision anchored in a $17bn transport corridor linking Al Faw Port and Basra with Mersin Port in Turkiye. The overland logistics route would bypass the Red Sea and Suez Canal, with all its afflictions, as well as provide an alternative to the India-Europe route that was previously backed by several GCC members, but which had been controversially looking at using Israeli ports. It remains to be seen whether the government can mobilise the capital needed for the planned highways and high-speed rail links. 

Iraq’s security situation also remains patchy. In April, drone attacks at the Khor Mas gas field in Iraqi Kurdistan caused production to halt. There have been many other similar attacks in recent years, leading to the withdrawal of several major oil firms from the country. The inability of Baghdad to stamp out such instances exemplifies the persisting weakness of the overall security situation in the country. It does not bode well either for the oil and gas sector or for Al Sudani’s grand vision for the country as a secure and favourable transport corridor. Iraq needs a credible economic vision for the future, and a strong logistics role is a viable option, but Baghdad’s journey there is likely to be an arduous one.

MEED's June 2024 market focus on Iraq includes:

> GOVERNMENT: Al Sudani struggles to maintain Iraq’s political stability
> ECONOMY: Iraq economic revival faces headwinds
> SECURITY: Iraq gas field attack to impact projects
> OIL & GAS: Iraqi oil and gas projects activity dips, but holds
> POWER: Iraq electricity sector makes slow progress
> CONSTRUCTION: Iraq steps up post-war revival

 

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John Bambridge

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