The steep decrease in the global price of oil was largely precipitated by the dramatic spread of the novel coronavirus global pandemic and the simultaneous flooding of oil markets by Saudi Arabia – which has brought prices as low as $25 per barrel, half of what it was at the start of this year.
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This is reportedly part of Riyadh’s bid to take over Russia’s market share with China and India. Riyadh is doing so out of anger toward Moscow for its refusal to support cuts in output proposed in an OPEC+ meeting early this month.
“This will have a devastating effect upon Iraq, which is the most oil-dependent country in the world,” Joel Wing, an Iraq expert and author of the Musings on Iraq blog, told The New Arab.
“At current prices, it will not be able to make payroll or pay pensions which is the largest cost in its budget,” he said. “It will also not likely be able to pay the oil companies that operate in the nation.”
|The steep decrease in the world price of oil was largely precipitated by the dramatic spread of the novel coronavirus global pandemic, and the simultaneous flooding of oil markets by Saudi Arabia|
Baghdad might decide to cut its own production, but that will result in it making even less money. “To make matters worse the political class are paralysed over picking a new prime minister,” Wing said.
“Therefore, the country has no leadership right when it needs it. Even then the Iraqi elite has never been good at planning.”
This was because when Iraq benefited from high oil prices it used the money to pay for hundreds-of-thousands additional government jobs “that they distributed to their patronage networks to stay in power.”
Furthermore, the Iraqi government never prepared for a decline in oil prices, which was always inevitable and predictable.
“Baghdad will have to implement massive austerity measures, raid its foreign currency reserves and try to borrow money to get through this newest crisis,” Wing said.
“Oil prices are so depressed, however, that these measures may cut so deep that they may lead to a whole new round of protests even bigger than the previous ones.”
This is not the first time the flooding of the oil market has helped ignite crises in the past. In 1990, overproduction by Kuwait and the United Arab Emirates raised OPEC’s output significantly and led to almost a $6 drop in the price of a barrel of oil.
At that time, for each dollar the price of a barrel of oil went down Iraq would lose $1 billion per year in revenues at a time it desperately needed the income and owed its neighbours billions in loans repayments.
That was one, of many, reasons that former Iraqi leader Saddam Hussein made the fateful decision to annex, and loot Kuwait that August.
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