Meed | Iraq hits the spend button

Iraq hits the spend button

11 May 2023

MEED's latest coverage on Iraq includes:

> GOVERNMENT: Sudani makes fitful progress as Iraq's premier
> POWER: Iraq power projects make headway
> UPSTREAM DEVELOPERS: No place like Iraq for international oil firms
> CHEMICALS: Iraq continues technical studies for $8bn chemical project
> SOLAR: Total continues 1GW Iraq solar talks
> TRANSPORT: Baghdad approves funds for metro and airport projects

After a year of turmoil, Iraq has found itself in a better place economically in 2023, with an improved fiscal and external position on the back of high oil prices and production and two years of budget surpluses.

That is the good news. Analysts fear that this relative strength may lead the government into dangerous territory. A 2023 budget submitted to the Council of Representatives amounts to ID199tn ($153bn) of spending – an unprecedented fiscal programme for Iraq, even if oil revenues look flush.

“Iraq remains vulnerable to swings in oil prices, especially given spending pressures, the difficulty of passing meaningful budget reforms and the shallowness of domestic financing options,” says Toby Iles, head of Middle East and Africa sovereign ratings at Fitch Ratings.

“The proposed budget for 2023 pencils in large spending increases, including for sticky items such as salaries. This would increase Iraq’s vulnerability to oil price volatility.”

Previous episodes of low oil prices, in 2015-16 and 2020, quickly led to financing challenges and recourse to central bank borrowing, notes Iles.

The last time Iraq attempted to push through reforms was after the 2020 collapse in oil prices. But the recovery of prices, together with other factors, removed the immediate pressure for change and snuffed out these attempts. “One could argue that it was a wasted crisis,” says Iles.

Most of the budget is current spending – about three-quarters of it, leaving investment spending at ID49.5tn ($38bn). The budget anticipates a sizeable deficit of ID117.3tn ($89bn).

The deficit would be financed by a mix of funding from the Ministry of Finance’s account at the Central Bank of Iraq and foreign financing of investment projects. This would necessitate domestic borrowing of ID31.5tn ($24bn), according to an analysis by Ahmed Tabaqchali, chief strategist of the AFC Iraq Fund.

Cleared path for spending

The Iraqi authorities’ thinking is that now the political logjams of recent years have, for the most part, been removed, the timing is ripe to open the purse strings.

“They are sitting on $115bn of sovereign reserves, which they haven’t been able to spend for a couple of years,” says Michael Knights, a fellow at the Washington Institute for Near East Policy.

“And now they’ve got a fully empowered government. Soon they’re going to have a fully empowered budget. So they see it as time to splurge all the oil income that’s been built up.”

There is a logic to this. Yet the sheer scale of the financing programme is the issue here. The $153bn budget is one and a half times the last authorised budget in 2021, says Knights.

And if the budget is approved as part of a three-year programme – which remains an option – it leaves the state finances particularly vulnerable should oil prices slip.

“If you play out the numbers, you can see that if they spend at these record high levels for three years, they’ll wipe out the majority of their sovereign reserves. And they’ll be down to very close to import cover levels,” says Knights.

One particular concern is that the government intends to increase the size of the public sector by bringing hundreds of thousands of civil servants on board and paying them more. Public sector salaries and pensions are projected to account for 41 per cent of operating expenditures, according to Tabaqchali’s analysis.

In Knights’ view, this approach falls under “out populist-ing the populists, keeping people happy while the government cements its control over the military, the judiciary and intelligence services”.

Risk-fraught gambit

It may still be risky, given that Iraq struggled with the last major oil price drop in 2020. Having to cope then with the degree of public sector fixed expenses, it could be much harder to carry this off now.

Iraq’s single commodity dependence is more acute than other Middle East and North Africa (Mena) oil exporters. Oil revenue accounts for almost all of the government’s revenue and export revenue.

“This high commodity dependence is the key vulnerability, while weak governance and political risk undermine prospects for a stronger non-oil economy,” says Iles.

The undeveloped banking sector is also an important weakness, hampering non-oil development and limiting government financing options during times of fiscal deficit.

“Buoyant oil prices have improved many of Iraq’s sovereign credit metrics, but the absence of structural, economic or fiscal reforms and persistence of political risk constrain the rating (B-),” says Iles.

There will be positives that will emerge from the substantive spending programme. For one thing, there will be a substantial liquidity boost that will drive economic growth. It will also help insulate the government against protests.

For a country that, in the words of the World Bank, has suffered from a combination of corruption, weak state institutions and patronage – leaving 9 million Iraqis living below the poverty line and unemployment as high as 14 per cent – this spending will come as a soothing balm.

Currency crisis averted

Another plus is that the country’s currency crisis of previous months, which led to a shortage of dollars, appears to have been contained.

“The dollar shortages that we have seen in Iraq since late 2022 reflect governance issues and political risk, rather than any fundamental economic imbalances. The central bank’s foreign reserves are at record high levels,” says Iles.

The constraints on FX supply came from long-standing concerns about the ultimate recipients and uses of FX sold via the central bank’s daily auctions. However, notes Iles, now there are higher volumes again in the central bank’s daily auctions and the premium of the unofficial exchange rate over the official rate has narrowed to some extent, reflecting gradual adaptation to the central bank’s new procedural requirements.

If more robust and transparent procedure bed in and normalise, this will have ultimately been positive.

And yet, if the 2023 budget gets passed and Iraq commits itself to a highly expansionary three-year fiscal cycle, fresh vulnerabilities will be baked into the Iraqi economic system that could store up troubles for later generations of Iraqis to deal with. The clock is ticking.

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James Gavin

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Distributed to senior decision-makers in the region and around the world, the September 2026 edition of MEED Business Review includes:

> AGENDA: Gulf nuclear revival takes shape

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> TUNNELS: The Gulf’s next construction boom is happening underground

To see previous issues of MEED Business Review, please click here

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The tender was issued on 14 September, with bids due by 12 November.

The scope covers site-wide utilities and services, including an internal road network, stormwater channels and culverts. It also includes installing sewerage and water networks, along with landscaping works.

In addition, Madayn intends to build plug-and-play industrial units and a facilities building.

The first phase of the development will cover about 120,000 square metres (sq m).

Thumrait Industrial City is located in Oman’s Dhofar Governorate and spans an area of more than four million sq m.

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In March, Madayn said it is preparing to invest more than RO245m ($637m) to upgrade and expand infrastructure across its industrial cities between 2026 and 2030, as part of efforts to attract new investment and advance economic diversification.

According to media reports, Madayn chief executive Dawood Bin Salim Al-Hadabi said the programme is part of an expanded, phased plan aligned with Oman Vision 2040 and the authority’s long-term Madayn 2040 strategy.

The objective is to deepen Oman’s industrial base and spread growth across the sultanate’s governorates.

Madayn said the pipeline comprises about 90 strategic projects to improve industrial-city infrastructure, extend serviced land and increase the overall ease of doing business for investors.

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Yasir Iqbal
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State-owned upstream operator Kuwait Oil Company (KOC) has reduced the number of approved contractors for onshore drilling and shallow-well maintenance from 51 to 24.

Firms that are no longer qualified include major contractors such as Italy’s Saipem, Oklahoma-based Helmerich & Payne and Houston-based Patterson-UTI Energy.

The latest list still includes a wide range of Kuwaiti, regional and international companies, according to the latest update on its electronic system, published on 21 September 2026.

The full list of contractors that are now qualified to participate in tenders is:
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- Kuwait Drilling Company (Kuwait)
- Sun Drilling Kuwait (Kuwait)
- TDL Kuwait for Oil Rigs & Natural Gas Extraction Activities, Services and Facilities (Kuwait)
- United Precision Drilling (Kuwait)
- Abraj Energy Services (Oman)
- Adnoc Drilling Company (UAE)
- Arabian Drilling Company (Saudi Arabia)
- Anton Oilfield Services (China)
- China Oilfield Services (China)
- Egyptian Drilling Company (Egypt)
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- Great Wall Drilling Company (China)
- John Energy (India)
- Kerui Oilfield Service (China)
- KCA Deutag Drilling (Germany)
- Mohammed Al-Barwani Petroleum Services (Oman)
- Nabors Drilling International (US)
- National Drilling & Services Company (Oman)
- Sea & Land Drilling Contractors (Oman)
- Sinopec International Petroleum Service Corporation (China)
- Karamay Jianye Energy (China)
- Modern Drilling Company (Egypt)
- Grey Wolf Drilling International (US)
An earlier list, which was published on 11 February, included 51 qualified companies.

The reduction in qualified drilling contractors follows KOC’s notice on 27 April this year, informing existing qualified contractors that they would need to reapply.
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Wil Crisp

Abu Dhabi expects 45% emissions cut as electricity demand rises

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Abu Dhabi-based Emirates Water & Electricity Company (Ewec) expects carbon emissions from power and water production to fall by more than 45% by 2035 as the UAE expands renewable energy and reverse osmosis (RO) desalination.

The state offtaker's latest long-term system planning forecasts emissions will decline from about 42 million tonnes in 2019 to approximately 23 million tonnes in 2035.

The reduction is expected despite annual electricity demand that is forecast to rise by about 70% in 2026-33.

Ewec said the expansion of renewable energy and the shift towards RO desalination will be the principal drivers of the reduction.

The company plans to increase Abu Dhabi's solar capacity to 14GW by 2030 and more than 35GW by 2035. This will be supported by up to 15GW of battery storage capacity.

According to regional project tracker MEED Projects, Ewec has over $16bn-worth of power and water projects in the execution stage as part of its long-term procurement programme to increase renewable energy and low-carbon water production capacity.

This includes a 5.2GW Abu Dhabi solar and battery energy storage system (bess) round-the-clock renewable energy project, as well as three 1.5GW solar photovoltaic independent power projects (IPP): Al-Ajban, Al-Khazna and Al-Zarraf.

It also comprises the 1GW Al-Dhafra open-cycle gas turbine power plant, the 2.5GW Taweelah C combined-cycle gas turbine (CCGT) plant and a separate 400MW bess IPP.

As previously reported, it is expected that the developer's agreement for the 3.3GW Al-Nouf 1 CCGT IPP will be signed by the end of the year, while contractors are preparing to submit bids for a separate 2.6GW power plant project in Ajman.

The expansion of solar and battery storage is expected to reduce the system's reliance on gas-fired generation. However, gas-fired generation will continue to provide flexibility to support the system and balance intermittent renewable power output, according to Ewec.

The offtaker also expects RO desalination to account for more than 95% of total water production by 2035, with the procurement programme supporting the Abu Dhabi Department of Energy's Clean Energy Strategic Target 2035 for electricity production and the UAE Net Zero by 2050 Strategy.