Iraq is a state heavily dependent on imports, from food and medicines to appliances, as well as raw materials for its industries. Its one big export is oil, but it sits on such a huge supply of the natural resource that revenues from the sale of oil abroad offset the imports and ensured that the country had a positive trade surplus. Things have changed, however, since the start of the US-Israeli war on Iran in late February, and the subsequent end to the free flow of trade through the Strait of Hormuz, through which much of the country’s trade with the rest of the world passed.
Now, Iraq’s Prime Minister Ali al-Zaidi has described the country as “facing extraordinary economic challenges”. Al-Zaidi said earlier this week that Iraq had lost about $60bn in oil revenues as a result of the war, the result of being, for a period, unable to export about 90 percent of its oil through its usual Gulf routes, which have become central to negotiations between Washington and Tehran, with the latter linking free passage through the strait to an easing of US pressure and the lifting of a blockade on Iranian ports. That’s a massive blow to Iraq: oil revenues account for more than 90 percent of Iraq’s federal budget.
The disruption to shipping routes has also affected supply chains, increasing transport times and costs for Iraqi businesses and consumers, in addition to reducing imports. One supermarket owner in Baghdad, Alaa-Eddin Sulaibi, estimated that the percentage of imported goods sold at his store was now 70 percent, down from 90 percent before the war started. He added that the price of the imported goods had risen by between 25 and 30 percent.
Several merchants who spoke to Al Jazeera said goods imported from China were now facing significant delays, in some cases taking up to three months to arrive because of the increase in transportation costs as a result of importers being forced to take more circuitous routes to bypass the Strait of Hormuz, or being delayed at the maritime chokepoint. The crisis has put pressure on the Iraqi dinar, which has dropped against the US dollar, in a development that has triggered concern among Iraqis. The dollar rose to about 1,600 Iraqi dinars on the parallel market last week, before easing to about 1,575 this week.
Prior to the war, it had been about 1,540 Iraqi dinars to the dollar. The widening gap between the official exchange rate – approximately 1,300 dinars to the dollar – and the parallel market rate has also created uncertainty for businesses and added to the financial burden on consumers. The official market rate is largely not available to everyday people, and the divergence in rates allows for some businesses to obtain dollars at the cheaper official rate, while others are forced to use the parallel market and pay more.
At the same time, the Iraqi government is also dealing with concerns about the availability and transfer of dollars that Baghdad receives through arrangements linked to its oil revenues. Following the fall of the regime of President Saddam Hussein after the 2003 US invasion of Iraq, the country’s oil revenues were placed in a special account in the US, with money then transferred to Baghdad. This transfer is renewed annually by the US president, with the stated purpose of safeguarding Iraq’s financial resources.
Extract — continue reading at the source.
