meed-logo

line1 line2 line3
SIGN IN / REGISTER

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.

https://image.digitalinsightresearch.in/uploads/NewsArticle/10835821/main.gif
James Gavin

Register for MEED's guest program now to access this article.

Click here to register
Exclusive from Meed
Related Articles
  • Adnoc Gas to rally UAE downstream project spending

    7 April 2026

     

    Despite the impact of recent Iranian attacks on its assets, the gas processing business of Abu Dhabi National Oil Company (Adnoc Gas) is on course to emerge as the largest spending entity in the UAE’s downstream oil and gas sector this year.

    Adnoc Group created Adnoc Gas, which began operating as a commercial entity in 2023, through the merger of its former subsidiaries Adnoc Gas Processing and Adnoc LNG. The consolidation of Adnoc’s gas processing and liquefied natural gas (LNG) operations formed one of the world’s largest gas processing entities, with a capacity of about 10 billion standard cubic feet a day (cf/d) across eight onshore and offshore sites, including Asab, Bab, Bu Hasa, Habshan and Ruwais.

    The scale of its infrastructure – particularly its 3,250-kilometre pipeline network, which is being expanded under the $3bn Estidama project – positions Adnoc Gas as a critical enabler of both domestic industrial growth and export competitiveness.

    Resilience amid geopolitical risk

    The recent drone-related disruptions highlight the growing exposure of Gulf energy infrastructure to regional conflict. However, the limited operational impact reported by Adnoc Gas suggests a high degree of system redundancy and resilience, supported by networked infrastructure and diversified processing capacity.

    This resilience is crucial as the company pushes ahead with its $20bn-$28bn capital programme for 2023-29. Continued investment despite security risks signals confidence in both project economics and the UAE’s ability to safeguard critical assets.

    Rich Gas Development

    At the core of Adnoc Gas’ expansion strategy is the Rich Gas Development (RGD) programme, which aims to increase processing capacity by 30% by 2030.

    The RGD project will enable the development of new gas reservoirs, helping to boost gas liquids exports, support UAE gas self-sufficiency and provide feedstock to the country’s growing petrochemicals sector, Adnoc Gas says.

    The first phase of the RGD project is under construction. Adnoc Gas awarded $5bn-worth of engineering, procurement and construction management (EPCm) contracts in three tranches for phase one last June – its largest-ever capital investment.

    The contracts cover the expansion of key gas processing plants to increase throughput and improve operational efficiency across four facilities: Asab, Bu Hasa, Habshan (onshore) and the Das Island liquefaction facility (offshore).

    The first tranche, valued at $2.8bn, was awarded to UK-headquartered Wood for the Habshan facility. The company said the contract value includes pass-through revenue and that it expects to recognise about $400m in EPCm revenue.

    Wood’s scope includes upgrades and debottlenecking of the Habshan and Habshan 5 gas processing complexes and pipelines, including brownfield modifications and the installation of new facilities.

    The remaining two tranches – $1.2bn for the Das Island liquefaction facility and $1.1bn for the Asab and Bu Hasa facilities – were awarded to UAE-based Petrofac and Dubai-based Kent, respectively.

    Petrofac, separately, said it will provide EPCm services and oversee procurement and construction contracts for a new inlet facility; two gas dehydration and compression trains, each with a capacity of 420 million cf/d; and associated infrastructure at Das Island. The company will also upgrade existing facilities to increase capacity for collecting and transporting raw gas.

    RGD growth phases

    Adnoc Gas’ capital expenditure commitment of $20bn for the 2023-29 period is expected to rise to about $28bn as it targets final investment decisions (FIDs) on the second and third phases of the RGD programme in the first quarter of 2026.

    These phases involve building a natural gas liquids (NGL) fractionation train at the Ruwais facility and a new gas processing train at Habshan. Adnoc Gas has selected main contractors for EPC works on both projects, although official contract awards are pending.

    Italy’s Tecnimont has been selected for the Ruwais NGL Train 5 project, which will have a capacity of 22,000 tonnes a day, or about 8 million tonnes a year.

    China-based Wison Engineering has been selected for the Habshan 7 gas processing train. The Habshan complex is one of the largest in the UAE and the wider Middle East and North Africa region, with a capacity of 6.1 billion cf/d across five trains and 14 processing units.

    With Adnoc Group advancing its P5 programme to raise oil production capacity to 5 million barrels a day by 2027, higher volumes of associated gas are set to enter the grid. The new train at Habshan, scheduled for commissioning in 2029, will help process these additional volumes.

    Bab Gas Cap development

    As part of its upstream expansion plans, Adnoc Group is working to extract gas from four underdeveloped gas cap reservoirs at the Bab onshore field: Thammama A, B, F and H. The Thammama A, B and H reservoirs are expected to produce a combined 1.45 billion cf/d, while Thammama F is projected to produce 396 million cf/d.

    Existing processing capacity at Habshan will be insufficient to handle these volumes. As a result, Adnoc Gas plans to build new facilities to process up to 1.85 billion cf/d of additional gas.

    The company is planning a new gas processing plant in the Bab area, about 170 kilometres from Abu Dhabi, along with associated pipelines and supporting infrastructure, as part of the broader Bab gas cap development project.

    Adnoc Gas has divided the EPC scope into four packages. It completed contractor prequalification in February and is expected to issue main EPC tenders in the second quarter.

    The company’s capital expenditure commitment could exceed $30bn once it reaches FID on the Bab gas cap development, which is expected later this year.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/16281839/main.gif
    Indrajit Sen
  • Israel ramps up gas exports to Egypt

    7 April 2026

    Israel’s gas flows to Egypt have returned to pre-war levels after restarting on 4 April, helping to ease the ongoing gas shortage in the North African country.

    Around 1.1 billion cubic feet a day is being transported by pipeline from Israel’s Leviathan and Tamar gas fields, according to a Bloomberg report.

    This is the same level that was being transported prior to Israel shutting down production from its offshore gas fields due to security concerns, and halting flows to Egypt on 28 February.

    Despite having its own gas reserves, Egypt is a net importer of natural gas and has been impacted by the surge in global prices since the US and Israel started their war with Iran.

    Last month, Egypt increased the prices of several petroleum products and natural gas for vehicles due to higher global energy prices.

    On 9 March, Egypt raised the price of natural gas for vehicles by 30% to E£13 ($0.25) a cubic metre.

    Egypt’s Petroleum & Mineral Resources Ministry said the increase was introduced due to “exceptional circumstances” resulting from geopolitical developments in the Middle East and their direct impact on global energy markets.

    It said that the regional conflict had led to a significant increase in import and domestic production costs.

    Egypt, the Middle East and North Africa region’s biggest liquefied natural gas (LNG) importer, is facing uncertainty over its LNG supplies in the coming months.

    Between March 2025 and February 2026, Egypt imported 9,440 kilotonnes of LNG, with the majority purchased under short-term agreements, mainly with third parties such as trading houses.

    Last year, it was reported that Egypt had signed deals for around 150 cargoes through to the summer of 2026.

    READ THE APRIL 2026 MEED BUSINESS REVIEW – click here to view PDF

    Economic shock threatens long-term outlook; Riyadh adjusts to fiscal and geopolitical risk; GCC contractor ranking reflects gigaprojects slowdown.

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

    > GCC CONTRACTOR RANKING: Construction guard undergoes a shift
    To see previous issues of MEED Business Review, please click here
    https://image.digitalinsightresearch.in/uploads/NewsArticle/16280784/main.jpg
    Wil Crisp
  • Egypt gas sector activity surges amid regional conflict

    7 April 2026

     

    There is a surge of activity in Egypt’s gas sector as investors pour money into boosting domestic production and the country makes deals to leverage its existing liquefied natural gas (LNG) export infrastructure.

    The increase in activity has come as the disruption to shipping through the Strait of Hormuz continues to prevent the shipment of around 20% of the world’s LNG supplies to consumer nations.

    While Egypt remains a net importer of natural gas, its geographical position, significant gas reserves and existing infrastructure, including two LNG export terminals, mean it can potentially capitalise on the current supply crunch.

    Harmattan development

    On 6 April, Arcius announced the final investment decision (FID) to develop the Harmattan gas field offshore Egypt.

    Arcius is a joint venture between UK-based BP and the UAE’s Adnoc, focused on developing gas assets in Egypt and the wider Eastern Mediterranean.

    The company acquired the El-Burg offshore concession area, which includes the Harmattan field, in February.

    An engineering, procurement, installation and commissioning (EPIC) contract for the project has been awarded to Egypt’s Enppi, while Cairo-based Petrojet and Petroleum Marine Services (PMS) have been awarded work as subcontractors.

    In a statement, Naser Al-Yafei, the chief executive of Arcius, said: “The FID to develop the Harmattan field marks an important milestone in advancing one of our first projects in Egypt toward production.”

    Idku LNG

    UK-based Shell also held a meeting with Egypt’s Petroleum Minister Karim Badawi recently, with talks focusing on increasing domestic natural gas production and utilising the Idku LNG export terminal.

    The terminal has a nameplate capacity of 7.2 million tonnes a year, but is not currently operated at full capacity.

    The Idku facility is owned by a consortium of companies, with Shell and Malaysia’s Petronas holding the biggest stakes.

    Gas corridor

    On 30 March, Egypt signed a natural gas cooperation agreement with Cyprus, laying the groundwork for a regional gas corridor that will allow Nicosia to transport its gas to Egypt to use its export infrastructure.

    The signing ceremony took place on the sidelines of a conference in Cairo, where both parties agreed to cooperate on the development and exploitation of gas resources.

    The text of the agreement focused on technical and commercial aspects of the deal, establishing a basis for future negotiations.

    Under the agreed terms, Cyprus’ gas will be processed in Egypt’s liquefaction facilities before being shipped to export markets.

    The agreement built on a memorandum of understanding (MoU) signed in February last year, in which Egypt agreed to buy gas from Cyprus’ Aphrodite field.

    Block 6

    It is also expected that Italy’s Eni, which operates Cyprus’ Block 6 concession with France’s TotalEnergies, will announce FID for the development of the Kronos field in the coming weeks.

    The field has reserves of 3.1 trillion cubic feet and, under current plans, the field’s gas will be transported to Egypt via pipeline before being exported from Egypt’s Damietta LNG terminal.

    Future investment

    As a net importer of natural gas, Egypt faces short-term economic problems due to the current high-price environment, forcing the country to pay more for energy imports.

    While this is a major setback for the country and is likely to erode its foreign currency reserves over the coming months, the current global shortage of natural gas could lead to increased investment in the country’s oil and gas sector.

    This could accelerate existing project plans within the sector as well as the development of new projects.

    READ THE APRIL 2026 MEED BUSINESS REVIEW – click here to view PDF

    Economic shock threatens long-term outlook; Riyadh adjusts to fiscal and geopolitical risk; GCC contractor ranking reflects gigaprojects slowdown.

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

    > GCC CONTRACTOR RANKING: Construction guard undergoes a shift
    To see previous issues of MEED Business Review, please click here
    https://image.digitalinsightresearch.in/uploads/NewsArticle/16280782/main.jpg
    Wil Crisp
  • Adnoc Gas and Borouge facilities suffer Iranian attacks

    6 April 2026

    Debris from Iranian drones intercepted by the UAE’s air defence systems has caused damage at the Habshan gas processing facility operated by Adnoc Gas in Abu Dhabi, killing one person on site, as well as at the petrochemicals complex operated by Borouge.

    In a disclosure to the Abu Dhabi Securities Exchange (ADX) on 5 April, Adnoc Gas, a subsidiary of Abu Dhabi National Oil Company (Adnoc Group), said debris resulting from a successful interception by UAE air defences in the area caused damage to a limited number of facilities within the Habshan gas complex on 3 April.

    The incident resulted in the death of an engineer working at the facility for Egyptian contractor Petrojet during evacuation. Four other contractors sustained minor injuries and were discharged from hospital after receiving treatment.

    Specialised teams were immediately dispatched to isolate the affected area and begin a comprehensive assessment of the damage to the production line, which is ongoing, Adnoc Gas said.

    “We are profoundly saddened by the loss of life and extend our deepest condolences to the family and loved ones of the deceased. Our thoughts are also with the injured colleagues, and we wish them a full and speedy recovery. The safety, security and wellbeing of our people remains our highest priority,” Fatema Al-Nuaimi, CEO of Adnoc Gas, said in the filing.

    “We remain committed to delivering shareholder value. Our balance-sheet strength and capital discipline support the resilience of the company,” she added.

    Adnoc Gas further said it is meeting domestic demand in the UAE through other facilities, with no impact on customer supply. “The company continues to actively collaborate with international customers and partners where needed,” it said in its disclosure.

    The Habshan gas processing facility has been attacked at least twice in March during Iran’s ongoing war with Israel and the US.

    Borouge incident

    Authorities in Abu Dhabi reported fire damage at Borouge’s main petrochemical facility caused by fragments from a drone interception falling on the complex on 5 April. No injuries were reported, the Abu Dhabi Media Office said.

    “Production activity in affected areas has been suspended following the incident whilst damage assessment and repairs are carried out,” the company said in a filing with ADX on 6 April.

    The company also highlighted market conditions. “A global shortage of polyolefins is driving a strong recovery in prices in March, which has continued in April,” it said.

    Borouge said it remains financially positioned to manage near-term impact. “Borouge retains significant financial resilience to navigate short-term operational disruption due to its strong cash generation and significant available liquidity.”

    Borouge pointed to strong operating performance heading into the disruption. “In the first quarter of 2026, Borouge achieved high utilisation rates and was able to sell a significant proportion of its production during the month of March via alternative routes,” the statement said.

    ALSO READ: Sultan Al-Jaber calls Strait of Hormuz blockade “economic terrorism”
    https://image.digitalinsightresearch.in/uploads/NewsArticle/16273020/main1639.jpg
    Indrajit Sen
  • Bapco Energies reports Iranian drone attack on facility

    6 April 2026

    Bahrain’s state energy conglomerate, Bapco Energies, said a fire broke out at one of its storage facilities following a drone strike, in the latest attack by Iran on the kingdom’s energy and industrial assets amid its ongoing war with Israel and the US.

    The tank fire, which resulted from the 5 April drone attack, has been fully extinguished and the situation is under control, Bapco Energies said.

    The state enterprise said the attack caused no injuries, adding that it is assessing the damage.

    “Emergency response teams acted immediately, working closely with the Civil Defence and relevant authorities to contain the incident and safeguard the site. The safety of our employees remains a top priority,” Bapco Energies said in its statement.

    This is understood to be at least the third major Iranian attack on a Bahraini energy complex, after Bapco Energies declared force majeure across its operations last month following two missile strikes on the Sitra oil refinery on 5 and 9 March.

    READ THE APRIL 2026 MEED BUSINESS REVIEW – click here to view PDF

    Economic shock threatens long-term outlook; Riyadh adjusts to fiscal and geopolitical risk; GCC contractor ranking reflects gigaprojects slowdown.

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

    > GCC CONTRACTOR RANKING: Construction guard undergoes a shift
    To see previous issues of MEED Business Review, please click here

     

    https://image.digitalinsightresearch.in/uploads/NewsArticle/16271286/main.jpeg
    Indrajit Sen