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Two and a half years ago, when the last coalition forces left Iraq, U.S. President Barack Obama said that Americans were "leaving behind a sovereign, stable and self-reliant Iraq." But today jihadists are tearing the country apart, having taken several major cities in the north, including the second largest one, Mosul. On June 10, Prime Minister Nouri al-Maliki declared a state of emergency and called for outside assistance, meaning primarily support (including military) from the U.S. But American strategists, who are embittered by their previous campaign, which was costly both in financial resources and human lives, have virtually ignored this appeal. Even without it, Obama′s approval rating is low, and the entanglement of the country in a new military campaign would destroy any hope that the Democrats would win the next presidential election.
Terrorists who call themselves the Islamic State of Iraq and the Levant (ISIL) have virtually erased the border between Syria and Iraq. They already control northeast Syria and vast areas of Iraq. Their future plans capturing more territories, with the aim of redrawing the map of the Middle East by creating their own Sunni state. Fully confident in their power, and taking advantage of the lack of response by the international community, the leaders of ISIL declared on June 29 the creation of an Islamic Caliphate on the lands that they have occupied. They also declared their leader, Abu Bakr al-Baghdadi, the Caliph and "leader of all Muslims."
The Islamists have taken control of very important strategic facilities and sites, including the largest oil refinery in Iraq in the city of Baiji and several oil fields. Given that the oil sector accounts for two-thirds of the country′s GDP, loss of control over it means that the government loses control over its sources of revenue. And the Iraqi army itself unwittingly made ISIL a huge gift: In their retreat, the government forces left the ISIL rebels weapons worth billions of dollars, including 260 modern armored personnel carriers as well as fighter jets and helicopters. Concern in particular is caused by the fact that the terrorists were able to capture a secret chemical weapons manufacturing plant as well as 40 kilograms of uranium compounds, which were being kept at the University of Mosul. According to experts, the materials obtained can be used to develop weapons of mass destruction. This could be classified as a threat not only to Iraqi national, but to international security as well.
ISIL is the product of the regional war and Islamic fundamentalism. During its struggle against President Bashar al-Assad in Syria, it recruited foreign fighters, some of whom were from Iraq and had fought on the side of Saddam Hussein against U.S. troops. Chaos in Syria and Iraq allowed members of the group to raise a considerable sum of money through extortion and kidnapping. They have also gained combat experience. The leaders of this terrorist organization already possess about $2 billion, and this amount can only increase due to income from the captured oil fields. This movement is so cruel, fanatical, and unscrupulous that other rebel groups in Syria have disavowed any connection to it. And even the number one terrorist organization in the world, al-Qaeda, has expressed its dissatisfaction with the methods of ISIL affecting not only the "infidels" but also Muslims.
According to experts, initially there were only 6,000 ISIL militants in Syria, of which, according to President of the Middle East Institute Yevgeny Satanovsky, about 2,000 were from Chechnya and Dagestan. For strategic reasons they were not able to advance all of their forces into Iraq, meaning that during the early stages of its lawless activity, this group was small, consisting of no more than 3,000 fighters. Such a group would hardly have been able to resist the Iraqi army. Therefore it can be concluded that in Iraq they gained the support of local Sunni sheiks and ordinary Sunni volunteers who were disaffected with the prevalence of Shiites in the Iraqi government. Thus, we are not just talking about the excesses of a particular group, but an impressive show of strength that is supported by a part of the Sunni population and could unleash a full-scale civil war and, ultimately, destroy Iraq. The death rate in Iraq has returned to 2008 levels.
What was the cause of Iraq’s chaos? Some still see the cause of all the country′s ills in the colonial past and the artificially drawn borders that did not take account of ethnic differences. Others blame the Americans for everything, since they destroyed the complex system of inter-community relations during their campaign. This is what led several internal and external forces to come into open conflict with each other: Iraqi Kurds and Arabs, supporters of the deposed Saddam Hussein and the new authorities, Iraqi Shiites and the Sunni minority, as well as Islamic radical groups protesting against the presence of western businesses in the country. In addition, the U.S. imposed a system of proportional representation on the country in accordance with religious and ethnic criteria, which completely broke with the previous secular principles governing Iraq. Yet a third group sees the roots of the current conflict in the sadistic regime of Saddam Hussein, which helped to spread hatred between the Shiite majority and the privileged Sunni minority. And there is also an opinion that the rivalry between Saudi Arabia and Iran contributed to fomenting sectarian strife in Syria and Iraq.
But the fault lies with the current leadership of Iraq. Nouri al-Maliki, a Shiite who has been prime minister since 2006, has demonstrated an increasingly authoritarian policy that has undermined democratic tendencies and aggravated internal ethnic and religious conflicts. Al-Maliki has expressed his sympathy for Iran and has acted mainly in favor of the Shiite majority. Corruption under his leadership is as bad as it was under Saddam Hussein. A study of corruption undertaken by Transparency International showed that in 2012, Iraq was ranked 169 out of 176 countries. Maliki has proven himself unable to establish normal relations with Sunnis, and even ordered troops to open fire on peaceful protesters. And the rule of law as well as the level of education and medical services are now lower than in the days of Saddam. The situation is even more complicated by the fact that President Jalal Talabani, an ethnic Kurd who often mediates between rival factions, is seriously ill and no longer actually performs his duties, as he has been abroad for the last 1.5 years. The absence of the president, of course, has not played a positive role. And a new president was elected only when the situation reached the breaking point and the sectarian conflict reached its climax. On July 24, Iraq’s parliament has chosen the well-known Kurdish politician Fouad Maasoum as its new president.
We can predict with high probability that Iraq has now ceased to exist as an independent state. According to Middle Eastern scholars, the government headed by Maliki will be able to hold onto a third of the current territory of the country at best. In addition to the collapse of the state, this may entail the destabilization of the entire region and the growth of ISIL. It could also threaten international security and have significant economic consequences. WEJ correspondent talked to the world′s leading experts in this field about the economic background as well as the measures that need to be taken to overcome the Iraqi crisis.
Expert Opinion
Luay Al Khatteeb, Director of Iraq Energy Institute and Visiting Fellow at Brookings Institution — Doha Centre.
What countries have an economic interest in Iraq today?
Many countries have significant interest in Iraq including regional ones, for security reasons, and those that have already invested in Iraq. However, the security spill-over that impacted Iraq and Syria by ISIL is now poses a significant threat to the international community, while the global economy is at stake. If the ISIL epidemic is not contained and eradicated any soon, it could engulf the Arabian peninsula into a full scale sectarian war, which means threating a region that produces 40% of world′s energy supplies and holds 60% of conventional global reserves of oil and gas.
How bad does the ongoing Iraqi crisis affect state’s economy? What is going on with oil extraction?
Iraq′s private banking sector and listed companies with branches at ISIL controlled territories have been impacted badly. Also, the country′s largest refinery, Baiji, is under siege by ISIL and various insurgencies, hence around 150,000 barrel of refined products are now on halt. As for Kirkuk oil field, exports have been offline before the crisis (since April) but the field together with the North Oil Company have been taken-over by the Kurdish Peshmerga, putting all facilities under the new authority of the Kurdistan Ministry of Natural Resource. However, there has been no interruption in southern productions and exports as most of the country′s capacity are predominantly in Basra. The average of last June oil exports has reached 2.423m barrel per day, this is 160,000 b/d oil less than May exports, but this is due to the increase of consumption from the south given the offline fields in Kurdish territories. It is very important to note that southern oil production and export centres will remain safe given that they are far from the fault-lines with ISIL, with no chance for ISIL to takeover Iraq′s main oil production in a Shia dominated south — ISIL just doesn′t have the host there to launch any offensives
How in your opinion should the global community behave in order to prevent further advancement of the ISIL?
Al Qaeda and its offshoots such as ISIL are no more domestic issues in Syria and Iraq. They are a global threat, and the international community is eligible to engage aggressively to end this threat before it′s too late. 1)Synergy is required amongst all regional and international players to share intelligence efforts to block the flow of terrorists into Iraq and Syria, 2) drying up the regional funding to those Qaeda groups and subgroups so to stop the cash influx, 3) embargo all oil trades and smugglings from Qaeda/ISIL that going through to Turkey, Iran and Kurdistan region of Iraq, 4) putting aside all political differences between regional countries to unite in the war on terror, and 5) implement UN security council resolution 1618 for 2005. Time is of the essence, time to act fast and smart.
Hossein G. Askari, Iran Professor of International Business and International Affairs at George Washington University
What are the chances that the US will work closely in cooperation with Iran to resolve the current Iraq′s crisis?
The United States has its back against the wall in the Middle East and North Africa. It has a lot of bad options. This is because it has consistently reacted to events and backed oppressive dictators and ruling families who happen to be in power. All in the name of short-term stability but long-term crises. Today, the US wrongly believes that Iran can be of help; it has intelligence; it has close allies in Syria, Iraq, Lebanon and even Afghanistan. So it will compromise with Iran and work with it. But it won′t last. It will be a marriage made in hell.
What countries have an economic interest in Iraq today?
At the top of the list are Iran and Saudi Arabia, followed by the US, Turkey and Syria. For Iran, Iraq is a prize as a large country with a Shia majority, an entry into the Arab world, and a partner for the future to control the oil market and the Persian Gulf. Iran is also worried about Iraq′s break up and the push for an independent country of Kurdistan. For Saudi Arabia it is a struggle against Iran and to keep the Al-Sauds in power; for them Iran′s cooperation with Iraq is seen as an existential threat. For Turkey and Syria it is the Kurdish issue. For the US the loss of Iraq will put the US on the sidelines when it comes to the Persian Gulf. It will have only the GCC. It will be tough going to defend them — a group of six weak countries — against an emerging Iran-Iraq-Syria alliance that will be destined to control the Persian Gulf and the Levant unless the US does something fast. In the longer-run this alliance of three will be an existential threat to Israel also.
How bad does the ongoing Iraqi crisis affect state’s economy? What is going on with oil extraction?
The crisis is making it tough for the international oil companies to buy Kurdish oil and to invest in Iraqi oil fields. It is too risky. As for the Iraqi economy, it is back to the 1950s. It is on its heels and corruption and uncertainty makes rational economic decision making impossible.
How in your opinion should the global community behave in order to prevent further advancement of the ISIL?
ISIL is a scourge on all. Here is where the Security Council should take a decisive step and do all it can to stop them. This provides the West and Russia an opening to begin working together again.
Ben Connable, Senior international policy analyst at the RAND Corporation
What countries have an economic interest in Iraq today?
I recommend looking at the Iraq Oil Almanac for a list of countries with oil concessions in Iraq. These include China, the U.S., Russia, Pakistan, Kuwait, Turkey, and many others. Each of these has an immediate vested interest in the economic stability of Iraq. However, because Iraq is a major oil producer, instability in the Iraqi economy or in Iraqi governance may affect global oil prices. Therefore, a stable Iraq is probably in the best interest of most nation states.
How bad does the ongoing Iraqi crisis affect state’s economy? What is going on with oil extraction?
Oil extraction continues in the south and north, but distribution and production have been disrupted in the northwest. Fighting in Anbar Province (and spillover from Syria) has also disrupted ground transportation and therefore ground distribution to and through Jordan. The state economy is relatively stable while oil production continues in the southern, Shia′ controlled areas of Iraq, and as long as the government retains control of Basra and Umm Qasr it will remain stable. However, loss of income from Bayji and from KRG associated oil will ultimately undermine the state economy. Further, the necessity to spend unplanned resources on security will almost assuredly undermine Iraq′s short to mid-range economic development goals. It is not clear yet how foreign investment will be affected by the fighting. Investment in the KRG is probably stable, but investment in the central government may suffer if ISIL continues to maintain control over northwestern Iraq and the Bayji facility. Provinces where ISIL is dominant, including Anbar and Nineveh, are in serious trouble. People there have little hope for economic or political stability, and it is highly unlikely international investors will engage in northwest or western Iraq any time soon.
How in your opinion should the global community behave in order to prevent further advancement of the ISIL?
I′m not sure that there′s much that can be done from outside of Iraq other than to encourage reconciliation. Countries like the U.S. and Russia can help by offering opportunities and venues for engagement, specifically focusing on the Sunni and Shia′. In terms of the Kurds: there is well-founded concern that the Kurds may withdraw from Iraq. This may be inevitable but I think it is worth trying to forestall the collapse of the Iraqi state. The only way to keep them in would be to incentivize them to stay. Finding those incentives and helping to implement them would be a useful activity.
Saad Aldouri, Expert at Middle East and North Africa Programme, Chatham House
The Iraqi government has been able to manage the short-term impact on the state economy of the militant insurgency led by ISIL in the north of Iraq, with the main damage thus far being to expectations, rather than oil exports.
The economy has been maintained through oil exports in the south of Iraq, which account for 90% of Iraqi oil production, going to China, India, S. Korea, the US and Europe, amongst others.
If the militant insurgency is not addressed in the medium term, it may well begin to adversely affect the oil infrastructure and slow the exports from southern Iraq. The continued threat of ISIL may prove too risky for major firms such as BP and ExxonMobil, and could force them to deploy emergency response plans and evacuate staff. The crisis could also accentuate existing bureaucratic barriers and lead to delays in operations.
For the month of June, the oil in the south of Iraq produced nearly 300,000 b/d below the initial 2.7m b/d loading schedule for the month, due to logistical problems and maintenance. However, barring any further technical problems, exports should recover to 2.6m b/d for July.
Additionally, the semi-autonomous Kurdistan region has increased production by 130,000 b/d to 360,000 b/d in June, as oil was delivered by its independent pipeline to Turkey, helping strengthen its political hand.
The territory controlled by ISIL and other militias in the north of Iraq does not contain any major producing oil fields. Oil exports through pipelines in ISIS territory in northern Iraq from Kirkuk to Turkey have been inactive since March because of damage caused to them, and are unlikely to be repaired soon. Moreover, fighting in and around Iraq’s largest oil refinery in Baiji has meant refining has ceased there, which may affect energy and fuel supplies to the north of Iraq.
Text: Olga Irisova
