Big Challenges Ahead For The New Iraqi Government

This article was published in Gulf Times on 22/12/2010

Iraq’s new government, finally approved yesterday after months of factional squabbling, must stabilise fragile security, pass new investment and hydrocarbons laws and rebuild war-shattered infrastructure. High on the priority list for a cabinet headed for a second term by Prime Minister Nuri al-Maliki is Iraq’s ambitious goal to become a top oil producer and exporter by tapping vast oilfields for the money needed to reconstruct a one-time pariah state torn by war before and after Saddam Hussain’s fall. Maliki will rely on former Oil Minister Hussain al-Shahristani, now elevated to deputy prime minister with responsibility for the entire energy sector, to continue his work with global oil companies to push Iraq’s crude production to world-class levels. What Comes Next? Lawmakers will be pressed to pass a long-awaited hydrocarbons law and new investment laws that carry at least some of the protections foreign investors are looking for before plunging into a nation just emerging from war. After nine months of limbo, the new government must pass a 2011 budget as soon as possible. The initial spending plan before lawmakers, based on oil at $73 a barrel, sees a $12bn deficit. Maliki has not decided on permanent ministers for sensitive security posts - defence, which controls the army; interior, which controls the police; and national security. Officials said Maliki lacked qualified, independent candidates. Progress on services will be an important factor in public acceptance of the new government. Iraqis frequently complain about intermittent electricity, water shortages and insecurity. “The new government will not be allowed the luxury of taking months to form a plan and years to implement it. People want fast solutions for the provision of social services and addressing the challenge of security,” said Eman Ragab, an Iraq expert at Cairo’s al-Ahram Centre for Political and Strategic Studies. Impact On Oil Iraq has signed a series of deals with international oil companies to unlock its vast oil wealth in a bid to boost its output capacity to 12mn barrels per day from 2.5mn bpd now. The deals could catapult Iraq into the top league of oil producers, rivalling Saudi Arabia. Oil companies could be reassured by familiar faces. Maliki returns for a second term; Shahristani, the previous oil minister and architect of the contracts, moves up to deputy prime minister with expanded power over energy; new Oil Minister Abdul Kareem Luaibi is well known to the oil firms and was at the negotiating table during the oilfield auctions. However, Shahristani’s promotion and the emergence of his close ally at the oil ministry leaves unresolved key energy issues: Baghdad’s troubled relationship with the semi-autonomous northern Kurdish region, which halted crude exports last year in a spat with the central government. Shahristani believes contracts which the Kurdistan Regional Government (KRG) has signed with foreign oil companies are illegal and his relations with the region are fraught. Kurdish lawmakers staged a brief parliamentary walkout last week when they learned Baghdad plans to dock the region’s share of federal revenues if it fails to produce oil for export next year. One analyst said Luaibi might be able to ease tensions between Baghdad and Arbil, the Kurdish regional capital. “Luaibi has been the main intermediary when there have been talks between the oil ministry and the KRG,” said Samuel Ciszuk of IHS Energy. “One could see him as someone the Kurds can at least stomach.” Impact On Non-Oil Investment Iraq’s infrastructure has been degraded by decades of war, sanctions and under-investment. The previous government had ambitious plans to ramp up electricity generation, build hundreds of thousands of new homes, expand ports, build railroads and pave roads. The new government may encourage potential infrastructure investors who have been sitting on the sidelines. But they will want clarity from parliament in the form of legal protections for foreign firms looking to invest in a country just emerging from war and from decades of dictatorship with a centrally planned economy. Iraq’s weakened but still lethal insurgency is also a worry for investors. Militants launch daily attacks - many aimed at the Iraqi army, police and government officials. Impact On Security The inclusion of all the factions - majority Shias, minority Sunnis and Kurds - in a power-sharing government could help prevent a slide back into sectarian slaughter. The ability of Iraq’s army and police to fend off a major surge in violence during the nine months it took to form a government could be a positive sign for investors as the US military forges ahead with plans to withdraw by end-2011. Iyad Allawi’s decision to join the government may help ease tensions. The leader of the Sunni-backed Iraqiya bloc, which won the most seats in a March election, Allawi had warned of the danger of marginalising his group. Allawi himself will lead a policy council and Iraqiya was awarded 10 posts in the cabinet. Iraqiya has several powerful positions, including speaker of parliament and finance minister. The open question is whether its share of the government will satisfy Sunnis, who dominated under dictator Saddam Hussein and voted in force for Iraqiya. — Reuters