Iraq's about to plunge off a fiscal cliff — and the consequences could be dire

[SocalDinar]

Iraq's about to plunge off a fiscal cliff — and the consequences could be dire

 

REUTERS/Essam Al-Sudani A worker walks at the Nahr Bin Umar field, north of Basra, southeast of Baghdad, November 16, 2014.

The plunge in oil prices is already having far-reaching effects on countries whose economies are dependent on oil exports.

But in Iraq, the stakes of cheap oil are even higher than in Saudi Arabia, which is instituting unprecedented taxation and austerity, or in Nigeria, which is now asking for an $11 billion World Bank loan.

What little remains of Iraq's government and social order might collapse if oil remains in its current price trough — with dire consequences.

According to a Monday AFP report, Iraq is now selling oil at half of the country's apparent fiscal break-even price. Right now, Iraq is selling its oil at around $22 a barrel, half of what it would need to fetch for the country to be able to fund the upcoming year of government budgetary obligations, the report said. 

United Nations Joint Analysis UnitIraqi government revenue by year, divided by oil and non-oil sources.

But Iraq's situation is actually even worse. As recently as the 2014 fiscal year, Iraq was formulating its national budget on the assumption that oil would remain at around $90 a barrel and that the country's oil exports would continue to climb (which they have).

Iraqi government revenue experienced dramatic annual increases between 2009 and 2013, almost entirely because of oil (see the chart on the left). That's all over, now that oil is expected to stay under $40 a barrel through the end of the year.

Though Iraqi oil is comparatively cheap to extract, it also contains unusually high levels of sulfur, meaning that it typically sells for around 10% less than Brent crude, the global price benchmark. The Iraqi government is still making money pumping oil — just not nearly enough to fund the country's anticipated national budget.

Such a daunting fiscal cliff would be challenging for a stable or politically coherent country. But it's potentially disastrous in a place like Iraq, where the majority of territory is split between the terrorist group ISIS and the Kurdistan Regional Government. Even the areas still under some semblance of federal control are fought over by a constellation of militia groups with ties to recognized political parties.

Ali Khedery, the CEO of Dubai-based Dragoman Partners, a former adviser to US Central Command, and a former Exxon executive with extensive on-the-ground experience in Iraq, warned that cheap oil threatens the country's last remaining semblance of order. 

"You are looking at a significant possibility of state collapse due to civil unrest," he told Business Insider.

RNGS ReutersTerritorial control of Iraq as of January 22nd, 2016. ISF refers to the Iraqi Security Forces, the state's official uniform military.

Cheap oil will eat into the Iraqi state's ability to continue fighting ISIS, which still controls Mosul, the country's second-largest city. And it could have an alarming effect on the patronage, corruption, and militancy that buoys the already dysfunctional Iraqi state.

As Khedery explained to Business Insider, the number of Iraqi government employees is believed to have shot up from around 850,000 at the time of the US-led invasion in 2003 to more than 2.5 million by early 2015. It's a revealing statistic, considering Iraq's transition from a strong, centralized state under Saddam Hussein to a loose and often-violent federation under its current system.

Khedery said that people were added to government rolls because of family, sectarian, or tribal connections. Some officials would pocket money through "ghost job" scams, embezzling salaries from employees that didn't actually exist. Some of the government's oil revenues would go towards militias with ties to official Iraqi political parties — organizations like the powerful Badr Group.

"Why did the number of government employees go up 200%? The reason is that Iraq is a kleptocracy built on systemic corruption and patronage as a means of buying votes," Khedery told Business Insider.

As a result, Iraq has little ability to hedge against against a plunge in oil prices.

"Unlike Russia or Saudi, which have hundreds of billions in hard currency reserves and trillions in assets and state owned entities, Iraq is insolvent and bankrupt," he said.

In a price crunch, Saudi Arabia has the option of selling off chunks of Saudi Aramco, its perhaps multi-trillion-dollar state oil concern — which is exactly what Riyadh is reportedly planning on doing.

Russia is a major gas exporter, and has a more-diversified economy than many other rentier states. Iraq, on the other hand, has little to show for the nearly half-trillion dollars in oil-export revenue the country received just in the decade after the 2003 invasion. It's largely been stolen, or dispensed to militia groups.

The Brookings InstitutionIraq's oil export revenues in the decade after the 2003 US-led invasion of the country.

As Khedery explained, an Iraqi "hard landing" has some alarming ramifications.

A plunge in federal revenue would only harden the division between Baghdad-administered Iraq and the Kurdistan Regional Government, which already has is own oil ministry, government, and security apparatus, and which sells more than 600,000 barrels of oil a day independently of Baghdad.

In addition to hastening the country's breakup, a budget plunge would also badly destabilize Basra, the southern export point for the vast majority of Iraq's oil.

The city has already seen increases in violence between Shi'ite militia groups that the federal government has been unable to disarm. Once organizations like Khataib Hezbollah, Jaysh al-Mahdi, and Asaib Ahl al-Haq see their bottom line threatened, the city on which much of the Iraqi economy is dependent could begin to erupt.

"The militias are going to start turning on the state, and they're going to start turning on each other," Khedery told Business Insider. "They're basically vultures who feasted on ethno-sectarian hatreds and high oil prices and patronage. And now they're going to have to start fighting each other for the scraps as the oil-funded pie has shrunk by more than 80%.

 

http://www.businessinsider.com/iraq-oil-price-plunge-fiscal-cliff-2016-2

[markb57]

this says it all.....

[Antietam]

Sand spiders

[caz1104]

Negativity breeds.......................Negativity. If anyone has ever been in a sales environment and had to listen day in & day out about how things will never work or the sky is falling from other employees you'd know how disruptive it is. Of course there is the other extreme as well.............but at least with the positive, one has the feeling of the possibility of success. Guru's & LOPsters are both counter productive for they spew their one sided view of what will occur. With the negative that is presented at nausea here, I'm surprised there hasn't been any reports of anyone jumping off buildings or bridges. Now I know that would be considered a good day to some LOPsters, I don't.

Edited February 3, 2016 by caz1104

[SocalDinar]

Well I guess you lopsters will find out soon enough if you were right.  Keep on crying though.

 Some  of just feel that things have changed drastically for the worse in Iraq.   I personally don't want to see a LOP but I do not think articles like this should  be ignored and a minimum should be read by those invested.  Only takes up a few minutes and much more worthwhile than the rumor section. Not crying, It's just a news article

[rockfl9]

Why isn't this posted in the news section?

Reuters is a credible source.

[10 YEARS LATER]

Does make one wonder just exactly how many in the GOI/CBI etc. understand that their toes are dangling over the cliff edge right down into the Abyss.

 

. . . and are they listening at all to what they're being instructed on from the "Higher Sources".  

[caz1104]

It is an interesting article

[SgtFuryUSCZ]

Why isn't this posted in the news section?

Reuters is a credible source.

***///

 

Yup... when it comes to money, read betwixt the lines and pay attention to the REUTERS....

 

they are THE  coconut telegraph for the elitists, illuminati, global banking cartels, et al...

 

They've been known to even communicate with one-another using The REUTERS by employing code within

the context of the articles.... so as not to risk being cyber-breached...

[SocalDinar]

Why isn't this posted in the news section?

Reuters is a credible source.

Good morning Rock

I put this down here because most negative articles get buried in quick fashion upstairs. Very few would ever read it in the couple of hours it would be on page one And so many people in the news section are quick to slam any article from a western news agency.

[caz1104]

SD,

 

I don't think negative articles "get buried in quick fashion upstairs" like you think. I think folks DO read them, but they just don't generate the "OH MY THE WORLD IS ENDING" effect that feeds LOPsters strange fetish. We accept them for what they are..............info. Obviously you get more responses from perceived positive info/articles/opinions from majority of investors/speculators that have a vested interest. Really not hard to understand - just sayin

Edited February 4, 2016 by caz1104

[Palmtree1970]

Sd

Good for you for keeping it real I for one like to read the good bad and ugly,i think it's upto the individual to digest all articles and come to their own conclusions,I can't wait to meet you one day my friend

[Antietam]

It's why I dumped 75% of my dinar holdings a month ago. I feel iraq is heading for an abyss, both economically and politically. Without a massive US occupation which isn't going to happen, iran will step in and pick up all the broken pieces. And iran now has 100 billion dollars from sweet obama, to buy influence, corruption, militany hardware and worst of all, ideology. If it gets much worse, I'll be giving caz a call to buy my remaining 1.5 mi at $1000 per mil, as he/she promised me.

[Shabibilicious]

It's why I dumped 75% of my dinar holdings a month ago. I feel iraq is heading for an abyss, both economically and politically. Without a massive US occupation which isn't going to happen, iran will step in and pick up all the broken pieces. And iran now has 100 billion dollars from sweet obama, to buy influence, corruption, militany hardware and worst of all, ideology. If it gets much worse, I'll be giving caz a call to buy my remaining 1.5 mi at $1000 per mil, as he/she promised me.

 

Wow!!!  1.5 million......quite an investment for a devoted skeptic.    

 

GO RV, then BV

[caz1104]

Auntiem.

 

Yes I agreed to buy....................never mentioned a price...........................of course you know that. I still will buy................at a price I feel is fair.............to me. If you haven't noticed..............it's a buyers market. I would think you'd take almost anything (dirty socks included), seeing as you believe" Iraq is heading for an abyss"............................right?

[caz1104]

Shabs,

 

Auntiem has quite the financial strategy. Sell off the majority(not all?) of holdings knowing/believing said investment/speculation is going sink "into the abyss". Interesting

[Shabibilicious]

Shabs,

 

Auntiem has quite the financial strategy. Sell off the majority(not all?) of holdings knowing/believing said investment/speculation is going sink "into the abyss". Interesting

 

Yes, it is an interesting strategy........seems to me, you could pick up his remaining 1.5 mil for about 4 bucks....give or take 1%.    

 

GO RV, then BV

Edited February 4, 2016 by Shabibilicious

[Antietam]

Ahhh, I think if you check your back postings you promised me $1000 per mil. Sounds like you're trying to weasel out. It will cost you $1500 DOLLARS for my dinar. That was the deal. Don't be a welcher. The world is watching.

[Shabibilicious]

Ahhh, I think if you check your back postings you promised me $1000 per mil. Sounds like you're trying to weasel out. It will cost you $1500 DOLLARS for my dinar. That was the deal. Don't be a welcher. The world is watching.

 

I'm sure there's more than 7 or 8 peeps in the world.     Besides.....cyber handshakes are a myth.  

 

GO RV, then BV

[caz1104]

Auntiem,

 

Never have I given you an amount I would pay................please re-post where I gave u an amount. As a matter of fact when this discussion started I asked several times (multiple posts) about your willingness to sell and never got a response.

[zzztop]

Israel is very close to bombing Iran's nuclear facilities.  If this happens, there will be no l0p, no RV, and no gradual increase in the exchange rate.  It's hard to do monetary reform when WWIII is starting near your border.

[caz1104]

ZZZ,

 

Lets hope & pray your wrong, on all fronts.

Edited February 4, 2016 by caz1104

[rockfl9]

SD  Iread similar report in the WSJ 2 weeks ago . It had a table of the number of months in reserve the various countries had.

I believe Iraq had 3. I wish i still had the paper to quote for sure. There was commentary about the adjustments the countries were making to cope. Iraq was not mentioned.

Waiting till they run completely out of funds IS the CLIFF.

I read that Zebari was to travel to London for medical treatment and would be out of the country for 3 months.. Isnt that a coincidence!!. 

[SocalDinar]

And it looks like there could be a run on the money. Thug posted this earlier today. http://dinarvets.com/forums/index.php?/topic/215541-iraqis-are-pulling-their-money-out-of-banks-for-fear-of-bankruptcy/

 

We could see the dinar devalue faster than they can print it.

It's why I dumped 75% of my dinar holdings a month ago. I feel iraq is heading for an abyss, both economically and politically. Without a massive US occupation which isn't going to happen, iran will step in and pick up all the broken pieces. And iran now has 100 billion dollars from sweet obama, to buy influence, corruption, militany hardware and worst of all, ideology. If it gets much worse, I'll be giving caz a call to buy my remaining 1.5 mi at $1000 per mil, as he/she promised me.

I'm down to 100 K.. ...Lesson learned

[SocalDinar]

Looks like people are getting less than the central's rate. This was posted in the the buy/sell dinar section.

 

Sale Pending....... for those who are considering selling Dinar and would like touse this sale as a basis for asking price,I did not sell for $850. The price was reduced considerably. Thanks

Read more: http://dinarvets.com/forums/index.php?/topic/215356-selling-1-million-dinar-850-purchased-from-dinar-trade-with-documentation/#ixzz3zFn9LmqP