
Protesters
display a huge Iraqi flag during a demonstration at Tahrir Square in
central Baghdad in early August 2015. Reuters/Ahmed Saad
Iraq Protest Tensions Escalate As Crude Oil Prices Drop Following China’s ‘Black Monday’
By Erin Banco @ErinBanco e.banco@ibtimes.com
on August 25 2015 4:03 PM EDT
In Iraq’s southern city of Najaf, people in local restaurants,
sitting in 120-degree heat, switched on their televisions. They’d heard
there was going to be another call to protest in the streets this week,
except
this time the message came from Iraq’s leading Shiite cleric, Muqtada
al-Sadr. The man who rallied Shiite fighters against American forces
during the Iraq War called on the people to rally in the capital Friday
to demand basic services, marking the first time a major political
leader has spurred locals to join the protests that have swept the
country recently.
“
We announce to all people and to the Sadrists in particular the need to participate in protests this Friday in Baghdad,” Sadr said through a televised speech by spokesman Salah al-Obeidi in the holy city of Najaf. “
The Sadrist participants should merge with the other protesters in a single, national Iraqi crucible.”
Multiple protests have taken place in Baghdad in the past few weeks
over corruption in the central government, ongoing electricity cuts and
lack of other basic resources like water. Since then, Prime Minister
Hader al-Abadi has implemented corruption reforms, including sacking key
members of his cabinet as well as other top officials, but so far none
of his reforms have targeted economic issues. The Iraqi economy, which
receives almost 90 percent of its revenue from oil, is vulnerable
following Monday’s Chinese stock market drop, which sent oil prices down
to $42 a barrel, 6 percent less than last week and less than half what
it was last year.
The dropping oil prices
and major cutbacks in exports have only increased the cost-saving
electricity outages in the country, not to mention tensions among locals.
The annual growth rate for electricity demand is anywhere from 4
percent to 8 percent across the Middle East and North Africa, according
to World Bank estimates, but it stands at about 25 percent in parts of
Iraq amid the ongoing shortages.
In July, Iraq exported 96.2 million barrels of crude, breaking
previous records and generating revenues of $5.31 billion in oil,
according to the Iraqi Ministry of Oil. But this month, Iraq’s oil
exports have fallen by 250,000 barrels per day, according to estimates
from the Iraqi Energy Network, a research and policy institute in
Baghdad. Low oil prices and a drop in exports lead to a decline in
monthly revenues.
Analysts say the falling oil prices — partly from the U.S. fracking
boom — and the consequences of the drop, could have been predicted by
the Iraqi government, but existing policies prevented Baghdad from
implementing mechanisms to protect its currency and its deficit from
growing.
“From 2010 until now, the shale industry has boomed significantly in
America. This has basically made the U.S. less dependent on crude in
Iraq,” said Luay al-Khatteeb, a foreign policy fellow at the Brookings
Institute, a think tank in Doha, and expert on Iraqi oil, adding that
the American shale industry has cut revenues for Iraq significantly in
the past year. “But there was a bad policy implemented by the Saddam
regime where public spending would continue to increase under the
assumption that oil prices would continue to rise and would stay around
100 dollars a barrel.”
The introduction of the Islamic State group in lands that hold large
oil reserves has further complicated matters for the oil sector in Iraq.
Oil consumers living in areas dominated by, or even loosely controlled
by, the Islamic State group are having to pay almost double the normal
amount for a gallon of gas (usually sold by merchants on the side of the
road in rural areas) because the Sunni militant group has siphoned off
millions of barrels of oil from the national grid.
Meanwhile, the Kurdish government has been struggling to limit the
damage and theft from the Ceyhan pipeline in Southeast Turkey as
bombardments targeting the Kurdish militant group known as the Kurdistan
Worker’s Party continue in northern Iraq. The Kirkuk-Ceyhan pipeline
stopped production in March because of the uptick in ISIS attacks on it,
with the halt costing Iraq about $1.5 billion a month. An explosion in
July also cost the pipeline $250 million. In total, the Kurdish
government has suffered $501 million in losses over the past seven
weeks, the Iraqi Energy Network said in a recent report.
Now, because of the economic hurdles,
the
Iraqi government’s $102.5 billion 2015 budget is running at a deficit
of about $21.4 billion, and the continued threat from ISIS will put more
pressure on the budget.
In January Iraq’s parliament passed a budget of $105 billion, which
constituted a 16 percent cut in spending, according to a report by The
Economist. The budget also attempts to raise revenue by introducing a
sales tax on mobile and Internet top-up cards, airline tickets,
vehicles, alcohol and cigarettes. Despite these maneuvers, the budget
still projects a large deficit.
As a result of low funds, Baghdad is having a difficult time paying
oil companies such as Exxon, BP, Royal Dutch Shell, and Lukeoil that
operate in the country’s southern oil fields. The oil companies are paid
a fixed dollar fee for production, so with the drop in oil prices, the
amount of crude needed to pay the companies has roughly doubled,
according to the Iraqi Ministry of Oil.
Although Abadi has yet to introduce any reforms to fix the
electricity issue in the country, the Iraqi parliament on Tuesday
threatened the electricity minister with a vote of no confidence if he
does not appear within four days to be questioned over the persistent
power crisis.
Sadr’s call to Iraqis has already gained momentum, especially on social media,
where people in the southern part of the country say they are ready to
attend the protests Friday. Thousands of people protested when Shiite
cleric Grand Ayatollah Ali al-Sistani called for demonstrators earlier
this month. The same number of people, if not more, are expected to show
up in Baghdad Friday.