MESOP NEWS : Low oil prices force Iraq to pass austerity budget as it struggles to pay soldiers fighting ISIS

Campbell MacDiarmid, National Post | February 4, 2015 – ERBIL, Iraq — Low oil prices have forced an austerity budget on Iraq as it struggles to rebuild its army and rally support across the sectarian divide to fight Islamic State of Iraq and al-Sham (ISIS).Since June 2014, when Brent crude was trading at about US$115 a barrel, oil prices have plummeted nearly 60% — with current prices under US$48.Iraq has been hit especially hard as at least 85% of its revenues come from oil sales.This is reflected in its latest budget, passed last Thursday. At 119 trillion Iraqi dinars ($133.75-billion), it is 15% smaller than projected only a few weeks ago.

   These volunteers haven’t been paid for months and we’re starting to see evidence of demoralization in these organizations This follows debate on how to price oil sales and implement a deal made with the autonomous Kurdish region in December, allowing it to export oil under Baghdad’s supervision. Despite cutbacks, the budget forecasts a deficit of $25.48-billion, which could climb higher. In their projections, Iraqi politicians are betting oil prices would rise later in the year to US$56. But this seems overly optimistic. It’s “way too high,” tweeted Kirk Sowell, the Jordan-based principal of Uticensis Risk Services, which publishes the Inside Iraqi Politics newsletter.

The situation bodes poorly for the fight against ISIS, say analysts and Iraqi politicians.

Haider al-Abadi, the prime minister, has warned rebuilding the Iraqi army — which suffered humiliating defeats by the Sunni jihadists last summer — will be difficult without more foreign help. At an anti-terrorism meeting in London in January, he suggested allies could help by letting Baghdad defer payment of ammunition and weapons.But the real challenge may be paying the salaries of Iraq’s various militias.Since the Iraqi army abandoned Mosul to ISIS last June, Shi’a militias have been at the vanguard of much of the fighting against the jihadis. Although these groups are largely independent and have been accused of sectarian murders, Baghdad promised to pay their salaries.

This has not happened in many cases.

“These volunteers haven’t been paid for months and we’re starting to see evidence of demoralization in these organizations,” said Hassan Hassan, an authority on ISIS at the Delma Institute, an Abu Dhabi-based research centre.In addition, a plan floated last summer to incorporate Sunni tribal militias into a national guard paid for and under the control of Baghdad has not been finalized, making it unclear as to whether it would be financed as part of the existing budget or not. Such an organization is important in the fight against ISIS, Mr. Hassan said, because Shi’a militias are unlikely to fight outside Shi’a-dominated areas. In addition, offering salaries to Sunni militias was one way of undermining ISIS’s support base.As Robert Bissett, Canada’s chargé d’affaires in Baghdad, noted, “The reason why ISIS has attracted so many members is that it is paying good salaries, salaries that are unpaid by the federal government.”

More broadly, Iraq’s austerity budget leaves little for ordinary Iraqis.

After subtracting government salaries, military spending, payments to the Kurdish autonomous region and subsidies, there’s little left for services, reconstruction and development. The budget is smaller than 2013’s (the country was unable to pass a budget in 2014) and introduces taxes on SIM cards, the Internet, and imported cars. The cuts are ostensibly focused on rooting out corruption and curbing excess spending, but “there’s only so much of that you can do,” said Mr. Sowell, meaning services will be reduced.This could be problematic. Extra spending is usually how the Middle East’s oil-based economies maintain popular support, says Valérie Marcel, an expert in oil and politics at the London-based think tank, Chatham House. “That’s more difficult right now … [it’s] quite a scary situation.”