With vast oil and gas reserves, a large well-educated workforce, and about $375bn of major projects planned or underway, there is no doubting the huge potential of the Iraq market for anybody looking for new project opportunities in the Middle East. The reality however is that the country’s vast potential has been undermined for decades by war, insurrection and sanctions, leaving it facing major political, economic and capacity challenges.
But an improvement in Iraq’s security situation following its “liberation” from the Islamic State in Iraq and Syria (Isis) in December 2017, combined with an improving economic outlook, means that Iraqis perhaps can look forward to a period of stability during which they can start rebuilding their country. These efforts have been boosted in 2018 by an increase in oil revenues from strengthening oil prices and the relaxation of production caps.
Iraq is in a far better position to benefit from the increase in oil prices than it was five years ago. Oil production capacity has risen by more than 75 per cent since 2013 to almost 4.5 million barrels a day (b/d). Additionally, a petroleum law was passed in March that will allow for better relations between the government and the foreign oil firms it relies on to develop its reserves.
Now that the Isis threat is past, vital assets are being restored and reconstruction plans put back in place. In June, the Oil Ministry announced the restarting of a strategic pipeline transporting crude from Kirkuk in the north to the capital Baghdad. The pipeline is of economic importance to Baghdad as it helps convey crude to refineries and power stations through a fixed asset, instead of the cost-intensive usage of surface transport.
A great deal of infrastructure was damaged by Isis, while ambitious infrastructure programmes were put on hold. In February, Baghdad with the World Bank presented a wish-list of $88bn of projects to investors at a reconstruction conference in Kuwait. About $30bn of pledges were received. In May, the planning ministry announced a $35bn, five-year reconstruction plan for Isis-controlled areas with EU and UN assistance.
But while the economic outlook for Iraq has improved, many challenges remain that could hinder its recovery. The most pertinent is the delay in establishing a new government following elections in May. Post-election deal-making is likely to be a distraction for politicians and discussions over policies and key projects could continue to cause delays even after a coalition working majority is formed.