As Biden Prepares to Finally Leave, Iraq Faces a New 'Existential Crisis'

Experts warn of a ‘severe medium-term existential crisis’ in Iraq as government corruption, neglect, heat waves and a resurgent ISIS leave Baghdad with too many challenges all at once

David Rosenberg
David Rosenberg
People gathering outside a COVID-19 hospital, following a fire that broke out, during a protest in Nassiriya, Iraq, last month.
People gathering outside a COVID-19 hospital, following a fire that broke out, during a protest in Nassiriya, Iraq, last month.Credit: STRINGER/REUTERS
David Rosenberg
David Rosenberg

The headlines coming out of U.S. President Joe Biden’s meeting with Iraqi Prime Minister Mustafa al-Kadhimi last week were about the largely symbolic decision to end America’s “combat mission” in the country by the end of 2021.

For ordinary Iraqis, however, a video by 17-year-old Ali Adil, who lives in the town of Hila some 110 kilometers (70 miles) south of Baghdad, better addressed Iraq’s real problems. “Biden! Fire in hospital, the weather in Iraq is hot,” he complained, referring to a blaze at an Iraqi COVID facility that killed dozens and constant power cuts that have made this summer’s record high temperatures unbearable.

Adil only hinted at what he saw as the country’s problems, but he didn’t have to be that explicit: Iraqis know that the fire was representative of pervasive corruption and mismanagement. They are suffering from the heat waves more than they should because the electric-power system barely functions.

Adil’s online plea went viral last month, got him a meeting with Kadhimi and even a response from the U.S. State Department. But the Biden-Kadhimi meeting on July 26 showed that the world’s attention remains focused on security rather than Iraq’s deep economic problems.

Even as the country struggles with a resurgent ISIS, and assassinations and kidnappings by Iranian proxy militias, many observers say it’s a failing economy and that the failure to deliver even the most basic services – first and foremost electricity – could bring down the government.

“There is a severe medium-term existential crisis for Iraq,” says Patrick Osgood, senior analyst at the London-based consultancy Control Risks Middle East. “It may hit the political elite sooner than they think. The political instability of the 2019 protest won’t be the last and the system needs to find a better answer, or it will start to break down,” he adds.

Iraqis took to the streets in October 2019 in anger at endemic corruption, high unemployment and a lack of public services. Hundreds were killed and then-Prime Minister Adel Abdul Mahdi resigned a month later, but protest leaders were later arrested or killed. Last month, power outages spurred another wave of protests.

Iraq is not alone among Middle East countries squeezed between this summer’s record high temperatures and rickety electric power networks due to years of underinvestment, government neglect and corruption. But Iraq may be more vulnerable to political fallout.

An Iraqi man working on the cables of a private electric generators provider in Baghdad's Sadr City district last month.Credit: SABAH ARAR - AFP

A massive blackout in early July drew wide media coverage. But sporadic power is a way of life for much of Iraq. Adil told The New York Times that his home gets electricity in intervals – two hours on, two hours off – which is an insufferable situation when temperatures have climbed to 50 degrees Celsius (122 degrees Fahrenheit) or more. When the power goes off, he has to go outside and switch on the family’s small generator. It can’t handle air-conditioning, but at least it keeps a fan running.

On paper, Iraq has an abundance of energy. It has the world’s fifth-largest reserves of oil. The government has agreements to buy power from Iran and other countries, and its abundance of sun and desert winds makes it an ideal place for renewable energy production. Oil revenues in the tens of billions of dollars annually should give it the financial resources to ensure power for everyone.

But all of those assets have been squandered by a combination of chronic security problems and government dysfunction.

Iraq’s government has spent more than $80 billion in improving the electrical system, and there’s been an increase in capacity. But most of the increased generation goes to waste because so much of the network is damaged, out of date and burns the wrong kind of fuel. As a result, an estimated 40 to 50 percent of power generated by Iraqi plants never reaches users. The world average loss, by comparison, is 8 percent.

The result is that today Iraq generates 18 gigawatts of power while demand runs at 26-28 gigawatts at any given time, according to Osgood.

Since 2013, Iran has provided up to a third of Iraq’s needs, especially during the peak summer months, with exports of electricity and natural gas to power Iraqi plants. In June, however, Tehran cut off the supplies. Baghdad has a U.S. waiver to import Iranian energy, but the rules for paying for it are complicated and Iraq’s finances are strained. As the arrears piled up to more than $4 billion, Iran said enough.

U.S. President Joe Biden greeting Iraqi Prime Minister Mustafa al-Kadhimi during a bilateral meeting in the White House last week.Credit: EVELYN HOCKSTEIN/REUTERS

The generator mafia

When the lights go out, household generators and private providers using jury-rigged systems make up for the shortfall. The latter, known as the “generator mafia,” have an interest in the national grid failing in order to drum up business. They are believed to be behind many of the attacks on pylons and other infrastructure. In fact, they may be making common cause with ISIS and other terrorist groups that have their own agenda of sowing chaos.

But Osgood says the biggest obstacle is that Iraqis usually don’t pay for the electricity, which means the system’s running costs and infrastructure development must be paid for by the government to the tune of some $12 billion a year.

Rachel Ziemba, an economic and political risk strategist and adjunct senior fellow at Washington’s Center for a New American Security, says that even if the government was effective, Iraq’s power problems are so manifold, it’s not clear where it could even start. “I think the challenge where Iraq is concerned is that there are so many challenges at the same time,” she notes.

The simplest solution would be to capture some of the natural gas that Iraq’s oil producers currently flare off as a by-product of the petroleum they pump out of the ground. According to the World Bank, Iraq wastes more natural gas by burning it off than any other country in the world, except Russia – the equivalent of 320,000 million barrels per day of oil (for comparison’s sake, Iraqis consumed about 860,000 barrels per day in 2016, the last year for which figures are available).

But harnessing the flared gas alone won’t solve the problem, since Iraq lacks enough processing facilities or the pipelines needed to deliver the natural gas to power plants

Solar power faces the same sort of obstacles. A small amount was developed in 2013-2014, before ISIS plunged Iraq into four years of chaos. After the jihadist group was defeated, the first tender for a facility was issued two years ago, but little progress has been made.

The generator mafia isn’t interested in competition and in any case, Iraq’s creaky power grid and the chronic sabotage has left investors doubtful about the feasibility of solar farms.

A desperate government has recently discussed the option of developing nuclear power to close the electricity gap, a proposal Osgood calls “wildly absurd” in the face of the country’s situation.

Private electric-generator providers Hamid Ghaleem and son Karrar at their businesses in Baghdad's Sadr City district last month.Credit: SABAH ARAR - AFP

Paltry growth

The money to fix Iraq’s power problems isn’t there any longer. The country had been struggling economically when the coronavirus pandemic knocked the wind out of it further. GDP plunged more than 10 percent as global oil demand dried up and prices tumbled. The government struggled to pay salaries and had little left over for the grid.

Oil prices have recovered this year, and the Organization of Petroleum Exporting Countries has increased Iraq’s production quota. But Iraq is still not out of the hole. The World Bank estimates GDP will grow a paltry 1.9 percent.

Government revenues have fallen and even in better days a massive system of patronage, where political parties dole out public sector jobs to their supporters, eats up 70 percent of the state budget. There isn’t much left over for infrastructure development.

“Iraq’s own budget won’t be able to deal with this,” Ziemba says. “Iraq is facing a challenge that, despite high oil prices, it has a debt burden that isn’t sustainable.” Furthermore, Iraq’s oil wealth isn’t all it’s cracked up to be after taking into account the country’s large population of 41 million (according to UN data). “Their per capita oil earnings are fairly low compared to their neighbors,” she adds.

Flames emerging from flare stacks at Nahr Bin Umar oil field, north of Basra, in Iraq.Credit: ESSAM AL-SUDANI / REUTERS

Nor can Iraq count on its oil bounty the way it used to, even if demand and prices revive to their pre-COVID levels. As the world tries to wean itself away from fossil fuels, multinational oil companies are seeking to reduce their carbon footprint – and Iraq is an obvious place to cut back. While extraction costs for oil are low, security and operating costs are high, and the investment rules are unfavorable, making Iraq an obvious target for divestment.

“The oil companies look at the horizon and they don’t see the same upside that they once did,” Osgood says.

Exxon Mobil, for instance, is seeking to bail out of its stake in the West Qurna field. Without the help of big energy companies, Iraq’s plans to increase output to 7 million barrels per day from 5 million look increasingly dim. The government will be more hard-pressed than ever to come up with the capital to invest in electric-power infrastructure.

Iraq’s problems are compounded by rapid population growth and climate change. The number of Iraqis is growing by more than 2.3 percent per year, people are migrating to cities where they use more electricity, and intense summer heat waves have boosted air-conditioner usage. The result is that demand for power is rapidly increasing by 7 to 10 percent annually, according to Ali Al-Saffar, an energy analyst at the International Energy Agency.

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