Analysis |

Iraq Loses Billions as Key Oil Port Kept Shut 'By Order of the People'

In addition to over 400 people killed in two months of unrest, protesters have blocked off key roads and paralyzed business as the national debt climbs

A photo of Dr. Zvi Bar'el.
Zvi Bar'el
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Anti-government protesters block the port of Umm Qasr, Iraq, November 7, 2019.
Anti-government protesters block the port of Umm Qasr, Iraq, November 7, 2019.Credit: Nabil al-Jourani/AP
A photo of Dr. Zvi Bar'el.
Zvi Bar'el

Since the beginning of October, a wave of demonstrations has swept through Iraqi cities, against institutional corruption and the country’s economic plight. The protests have exacted a heavy price with more than 420 people killed in the unrest while thousands more were injured.

The turmoil has also incurred huge economic damage, as shown by the following scene.

Two heavy concrete roadblocks obstruct a highway to the port of Umm Qasr, Iraq’s primary port for oil and goods. “The road is closed by order of the people," said a message spray-painted in red at the site were several masked young men could be seen, their faces wrapped in an Iraqi flag. Keeping the road shut means denying any entry or exit from the major port area.

The Iraqi government reported a loss of some $6 billion due to the lack of access to the port and nearby roads normally used by oil company employees. Some of the companies had to curtail all oil production as a result.

Some Iraqi commentators think the government is deliberately exaggerating the scope of the economic damage caused by the protests, particularly in the oil sector, in a bid to frighten the protesters and show them that anyone seeking to change Iraq’s system of government and to eradicate competition needs to consider the consequences of their actions, that if the government cannot export any oil it will lack the funds to pay out public workers' wages.

Iraqi demonstrators arrange mock-up coffins of people who were killed during ongoing anti-government protests in Nassiriya, December 4, 2019.Credit: Alaa al-Marjani/Reuters

But the demonstrators don’t really care. With an official jobless rate of 11 percent and unemployment among young Iraqis reaching as high as 25 percent, and in some areas even 40 percent, the salaries that they are not earning don't really matter to them.

In response, they point to the astronomical salaries earned by members of parliament and the country’s leaders. Some members of parliament earn more than $35,000 a month, while simple Iraqi laborers earn a minimum wage of $200.

The basic monthly salary paid to Iraqi legislators is in fact about $800, but among the fascinating bonuses they get are wage supplements, a 100 percent bonus for those with a doctorate, and 75 percent for a master’s degree. In addition, legislators are entitled to generous benefits such as a car and fuel expenses and inflated compensation for other outlays far in excess of what is accepted in the West.

Iraq’s treasury is shelling out pension payments to about 3.7 retired government workers and another 4 million workers on the government's payroll, in a country with a population of about 40 million. These are the official figures. In practice, the government pays many more employees and all told, these expenses are eating up 75 percent of the country’s $112 billion budget.

The result is that leaves only a small slice of the budget for investment in projects and infrastructure. So, for example, a national plan to build thousands of classrooms was made a part of the budget last year but few were actually built. It’s not clear where the money disappeared to, but based on 2018 figures, about 12 percent of the national budget was earmarked for development but only 5 percent was actually spent.

Anti-government protesters block the port of Umm Qasr, Iraq, November 7, 2019.Credit: Nabil al-Jourani/AP

Where did the money go? In the absence of oversight and in a country in which transparency is an unknown concept, it’s hard to track expenses. Even the government’s income is a matter of guesswork.

According to October data from the World Bank, Iraq’s tax revenues plunged by more than 33 percent due to expanded tax exemptions, while expenditures grew by more than 29 percent after Shi’ite militias became a government responsibility. As a result, the bank expects that a current 4.6 percent rate of economic growth in Iraq to dip to 2.7 percent in 2021.

Iraqi economists take the view that the problem isn’t a lack of money. The fact is that the country finished 2018 with a $21 billion surplus. The problem, they say, is poor management and corruption.

For example, importers enjoy preferential exchange rates at the Iraqi central bank. All they have to do is show proof that they're importing merchandise from abroad. Afterwards they live rather well off profits earned by selling their cheap dollars on the black market.

Another example is party control of Iraq’s oil terminals. At Umm Qasr, three political movements run the show – parties headed by Ammar al-Hakim, by Muqtada al-Sadr (the popular Shi’ite leader who inflames his followers against the government and the theft of public funds) and the Islamic Dawa Party led by former Prime Minister Nouri al-Maliki, known to be one of the country’s most corrupt prime ministers.

Anti-government protesters gather near barriers set up by security forces to close Rasheed Street during ongoing protests in Baghdad, Iraq, December 5, 2019.Credit: Khalid Mohammed/AP

All of the merchandise entering or leaving the port generates nice commissions for these parties, in addition to the generous cuts they each receive from the state budget in the guise of funding for government ministries under their control. This is the “quota” system that the protesters have targeted. They have demanded the establishment of a more transparent government of technocrat. But it’s hard to find technocrats in Iraq not linked to one of these political movements.

It’s true that Iraq has managed to accomplish an impressive recovery since the end of the war against Islamic State. The security situation is much better. Oil production has reached 5 million barrels a day (in contrast to the bleak prediction of 3 million in 2014) and some infrastructure, such as water supply, has improved.

Yet Iraq, a country sitting on the world's fifth largest oil reserves, has a $66 billion debt (of which about $40 billion was left by their late president Saddam Hussein). And every year, Iraq pays about $12 billion in interest and principal on these debts.

But these figures haven't persuaded anyone to stop the protests by activists no longer prepared to pay the price of corruption and poor management and who demand immediate solutions and, above all, jobs.

These problems will unlikely be resolved by this month's resignation of the prime minister, Adil Abdul-Mahdi, and his government. Nor it is it anticipated that a new government, and nobody knows when one will arise, will resolve these issues, either.

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