Al -Jazeera Net Correspondents
Global oil prices witnessed a record decrease – yesterday, Monday, by 7%, which is the largest since the peak of the Corona pandemic in 2020, as oil prices were negatively affected after the decision of the OPEC Plus coalition – last Thursday – to increase oil production by more than 400 thousand barrels per day, to come after the decision of US President Donald Trump to increase customs duties on imported goods, which contributed to a Chinese reaction that led to low oil prices as a result of concerns from fears from Slow down global economic growth.
These factors are combined to negatively in the interest of oil exporting countries, especially Iraq, which depends approximately 90% in its annual financial budget for the crude oil exported, as the decrease in oil prices raises the alarm of the Iraqi government, which found itself in an equation and limited options, the best of which is, according to observers.
A difficult equation
In its financial budget, Iraq depends on the export of oil, as parliament acknowledged two years ago the triple budget for the years 2023, 2024 and 2025, relying on the export of oil at a price of $ 70 a barrel, at a time when oil prices decreased by more than 7% in immediate and future transactions during the past days.
Perhaps the impact of the low oil prices in Iraq does not appear in the coming days and weeks, which is confirmed by the Mazhar Muhammad Saleh, the economic advisor to the Iraqi Prime Minister, who stressed that this crisis will turn into a threat if it continues for more than 3 months, he said.
Speaking to Al -Jazeera Net, Saleh confirms that if the crisis continues for more than 3 months, its effects will be similar to the financial crisis that Iraq has gone through at the height of the Corona and the collapse of oil prices in 2020, when the government was forced to harsh austerity measures.
As for the member of the Parliamentary Finance Committee, Jamal Koger, he sees for his part that it is too early to judge the country’s financial situation through oil prices for past days only, pointing out that the current year of $ 163 billion has not entered into force yet, and therefore, the government is still in a position to dispose of freely by codifying operational expenses taking into account that the current fiscal year has only 7 months left.
On the other hand, the economist Anmar Al -Ubaidi believes that all the options before the Iraqi government are difficult to investigate and the best of them, according to his description, especially since the percentage of employees salaries of the budget value exceeds 65%, and therefore, even if the government intentionally adopts the principle Sufficient liquidity to pay employee salaries, especially if the price of a barrel of oil is up to $ 60 or less, which means that the total budget deficit will be about 25% for employee salaries only without calculating the rest of the expenses.
Critical options
Speaking to Al -Jazeera Net, Al -Ubaidi indicated that the government has many options that it may gradually deal with depending on the time period of the crisis, and depending on the country’s internal political situation, indicating that if the oil prices continue to drop, the government will resort to relying on the country’s monetary reserves of about 115 billion dollars, he said.
As for changing the dinar exchange rate against the dollar, Al -Ubaidi does not rule out that the government will resort to such a measure, especially since the government of former Prime Minister Mustafa Al -Kazemi resorted to him at the height of the Corona crisis, indicating that this step will be accompanied by great dangers on the country’s economic reputation, as well as the government’s fear of any popular turmoil in the event of a decision like this, he said.
In return, the economic advisor to the Prime Minister will exclude the direction to change the dinar exchange rate, and that its impact will be large and extended to the end of the crisis, pointing out that such measures come at the end of the series of governmental procedures that may not continue if the price of a barrel of oil has increased to the price of the country’s general budget, according to him.
In this direction, a professor of economics at the Iraqi University, Abdul Rahman Al -Mashhadani, who believes that changing the dinar exchange rate is not currently, especially since the impact of this will be mainly on employees through a decrease in the value of their salaries, as well as that even if this step is made, the government cannot control the gap between the official price of the dinar and its price on the black market, especially since trade with Iran is still in full swing, which means an increase In addition to the dollar exchange rate in the parallel markets.
The government of former Prime Minister Mustafa Al -Kazemi reduced the value of the Iraqi dinar in December 2020 from 1,200 dinars to the dollar to 1470 dinars, while the government of the current Prime Minister, Muhammad Shi’a Al -Sudani, raised the value of the Iraqi dinar from 1470 to 1320 dinars in February 2023.
Al -Mashhadani sees with hope for the current crisis, indicating that what is happening is a fluctuation in oil prices, and this cannot be considered a collapse, indicating that the future of oil prices depends on the overall international and regional situation, whether related to Washington’s threats to Tehran, as well as OPEC Plus decisions and the future of American customs duties.
Returning to a member of the Parliamentary Finance Committee, Jamal Koger, stresses that the government should move away from the rental economy that is fully dependent on oil, pointing out that otherwise, the government will enter a critical stage if oil prices decrease below $ 60, which will make the government unable to pay the salaries of employees, he said.
The Iraqis are awaiting the economic situation in their country, especially since the past years remind them of the financial crisis that the country endured in 2015 at the height of the war on the Islamic State, in addition to the financial crisis that occurred in conjunction with the Korona pandemic and the significant increase in inflation in the country.
