BY any measure, Iraq has had a terrible time since 2003. Yet when it comes to the global financial crisis, Iraq may for once be in a privileged position. Tens of thousands of Iraqis have died in five years of rampant bloodshed. Much of the country's public works and infrastructure has been reduced to rubble. Educated Iraqis have fled the country en masse and reconciliation remains elusive. But years of sanctions and isolation under Saddam Hussein's rule mean Iraq has not been woven into the fabric of a global financial system that is in the grips of its worst crisis since the Great Depression of the 1930s. “The good news, perversely, is that Iraq is not that tied into the international economy,” an official at the US embassy in Baghdad said, speaking on condition of anonymity. As of July, only about half of Iraq's banks were set up to make international wire transfers. Major transactions are often conducted in cash, with businessmen toting bricks of dollars. While slowing global growth could depress private investment flows into some industries outside the vital oil sector, Iraq is sheltered from the worst of world financial market turmoil. “In that sense, they're insulated from these shocks,” agreed Erik de Vrijer, International Monetary Fund Iraq mission chief, who says Iraq's problem has been finding ways to spend the money it does have. Still, a sharp drop in oil prices in recent weeks could spell trouble in the long run for Iraq, where oil exports account for over 90 percent of government revenues. Plunging prices Struggling to find its feet as violence drops dramatically, Iraq is desperate to improve basic services such as electricity and water, to attract investment and create jobs. Many people fear bloodshed could erupt anew if services, jobs and prosperity don't materialise. Iraq is lucky enough to sit atop the world's third largest oil reserves, and the US-backed government of Prime Minister Nuri al-Maliki is taking steps to boost production. Last week, Oil Minister Hussain Shahristani held court in London with the world's major oil companies, like Exxon Mobil and Royal Dutch Shell, who are jockeying for contracts to operate eight huge big oil and gas fields. A surge in world oil prices – peaking at over $147 a barrel in July – has helped improve Iraq's fiscal position. In August, the United States predicted oil revenues could spike as high as $79 billion this year, more than twice the average annual amount Iraq generated from 2005 through 2007. Yet oil prices have lately taken a nosedive, falling more than 50 percent from July as global growth sputters. On Wednesday, US crude was trading below $70 a barrel. Lower prices may not deter oil investors, who tend to look far past the day's market vicissitudes, but they do threaten to undermine Iraqi government spending if prices stay low for good. Iraq has already revised the oil price on which it based its $79 billion proposed budget for 2009 to $80 a barrel, and may do so again. The government said on Wednesday it was reviewing the 2009 budget because of falling oil prices. Acute needs Onlookers say plunging oil prices do not immediately endanger crucial reconstruction projects – improving power and water supplies, for instance. In 2007, Iraq spent less than 30 percent of the $12 billion it budgeted for investment and capital projects – drawing the ire of many US politicians who complain Iraq needs to foot more of the bill for its own reconstruction. The government has allocated billions of dollars in recent years for oil, water and power sectors which have not yet been spent. As of December 2007, it had accumulated financial deposits of $29.4 billion, US officials say. Yet Iraqis' needs are acute. Many people have just a few hours of grid electricity a day. For some, clean water is a luxury. Unemployment remains sky-high. While overall economic growth is forecast at 9 percent for 2008, the story outside the oil sector is more dark, where officials say there was actually a slight contraction in 2007. Moreover, Timothy Mills, president of the American Chamber of Commerce-Iraq, said the global financial crisis could create problems for small-to medium-sized companies looking for credit for projects in Iraq. Iraq will also be competing for attention with bargain hunters who, under current conditions, have an array of cheap options to invest in places without Iraq's security worries. “Investment in (non-oil) sectors is likely to be impeded while this gets sorted out – except for projects that are very clear winners and are privately funded with either Iraqi or Gulf money,” Mills said. Private investment in the hotel or construction sectors might be the first to suffer. “Hopefully this crisis will not influence workers' ability to find opportunities,” said Amjed al-Juburi, chairman of the Baghdad Chamber of Commerce. “Iraq may be able to weather this better than others,” the official at the US embassy said. “On the other hand ... the economy is still very fragile and even a little bit of a reduction in growth is bad. Iraq needs everything it can get.” – Reuters __
