Iraq Will See its Economy Rise in Coming Years, But the Country Faces Very Tough Days Ahead

Saddam Hussein has been gone for almost six years, the war ended nearly a year ago, and amid the undercurrent of instability, Iraq seems to be holding steady for the most part. However, things have just started getting interesting over there.

Iraqi Kurdistan, in the north of the country, epitomizes the aspirations of Iraq to regain its international stature as a strong state and an oil exporter. It also represents Iraq's internal and international struggles, as various interests vie for a share of Iraqi oil wealth: Americans, Iranians, Russians, and Europeans are all heavily involved. Topping it off is the security dimension, where economic growth is haunted by the ghost of political instability, as next door in Syria, war continues to rage and the indecisive Arab Spring turns into a stalemate with a beard.Iraq is a lot like the Balkans with its location: a geopolitical fault line. If there isn’t a war in Iraq, there’s probably a war next to Iraq – that has become a testable theory in the last decade. Despite these realities, Iraq is on the way to political and economic recovery for the first time since the 1990s.

The silent game of frenemies gave off a puff, when Prime Minister Nouri al-Maliki’s office said that Iraq is cancelling a $4.2 billion deal with the Russians for Mil-28 helicopters, Pantsir-1 and Pantsir-2 antiaircraft weapons systems and the missiles to go with them. Then, the Iraqi defense minister publicly denied that the arms deal had been cancelled in a 180° flip on the alleged facts.

We should also throw in another persistent monkey wrench: Kurdistan. Being formally denied a state of their own, Kurds have chosen to profit from the extended autonomy under the new federal conception of Iraq and oil has driven that growth. The main reason is the strategic importance of the Kirkuk oil field in Iraqi Kurdistan and that much of the region’s oil potential is still not explored.

Tensions remain, however. 

Iraq already warned energy company Gazprom that direct deals with the Kurdish Regional Government, without the approval of Cabinet and the Ministry of Oil, are legally void. Total and Exxon Mobil concluded similar deals, but only Exxon was blacklisted, according to the same cited article.  

Looking at the large regional picture, the government in Baghdad is under pressure from Iranian influences. The geographical proximity is not only about fighting decade-long wars, but it can be immensely profitable for both sides. On the one hand, having a market of 74 million people next door makes perfect business sense for Iraqi exporters and transactions based on barter or gold mean that Iran can get around sanctions and still sell oil to willing customers. Bilateral trade, according to Bloomberg, has already reached $11 billion by mid-2012 and slated to grow to $15 billion by next March. Not to dismiss is also that Iran is looking to enter the rat race for influence in Kurdistan.

What we see is that American, European, Russian and Iranian interests converge on the Iraqi street. One might also mention Saudi Arabia, but the bilateral relationship between Riyadh and Baghdad has just begun to thaw after it was frozen in the immediate aftermath of the American invasion in 2003.  

While the Americans are going to try to maintain as much influence as possible in Iraq, this will become a more difficult task given the tough economic situation at home. Consequently, the opened space will be filled by Iranian and Russian influence.

From a security perspective, Iraq might be on the verge of enjoying its most important international role in a long time, as the possibility of war with Iran threatens to close Hormuz and Syria continues to destabilize, threatening to spill over into Turkey, Lebanon, and Israel. Being right next to the fray, Kurditsan will also get restive, living with political instability alongside frequent Turkish air strikes and rapid economic growth – in the very least, it is a chance for Baghdad to gain the capacity through oil revenue to reassert its borders once more.  

From the experiences of the Arab Spring, we might say that the alternative to authoritarianism is a democracy, grounded in Islam, or what might be an unconsolidated version of Iran with a familiar whiff of old regime hands and their methods. Considering that all of the states in the Mideast, aside from Iran and Egypt, are artificial constructs, political disintegration and rehashing of the political map might be one unintended consequence of democratic change. We only need look as far as Syria’s problems and those brewing in Afghanistan, due to break out when NATO leaves in 2014.

To conclude, the question is about stability or democracy? That’s the dilemma facing Baghdad’s regional perspective.