Iraq leaps into the gap once more, but only after political elites secure funding

 Two major events in Iraq this week will define the remainder of the year, but hopefully not many more. First, on June 8, the country's split parliament passed the so-called ‘Food Security and Development Bill’, a contentious piece of legislation with a price tag of IQD25 trillion ($17 billion). There are still doubts about its constitutionality, as well as suspicions that it may allow Iraq to spend a portion of its crude oil export windfall in an opaque manner in 2022.

Second, on June 9, Muqtada al-Sadr, a fiery populist Shi'a preacher, issued an almost-overnight demand to parliamentarians sympathetic to his movement to ‘prepare their resignations’. Mr. al-Sadr, who rose to worldwide prominence after leading an armed campaign against American soldiers during the occupation, has subsequently grown accustomed to bizarre political maneuverings. This has been especially true recently, as Iraqi politics has been paralyzed for the past seven months following the Oct. 10, 2021, early parliamentary elections.

Mr. al-Sadr joined himself with the Masoud Barzani-led Kurdistan Democratic Party and Takadum, a Sunni group led by Parliament Speaker Mohammed al-Halbousi, whose bloc gained the most seats in the October election. 

The coalition, which aspired to form Iraq's first ‘national majority administration’ since 2003, recently renamed itself the ‘Alliance to Save the Homeland (ASH)’ instead, its opponent, the Shi'a Coordination Framework (SCF), a loose coalition of orthodox Shi'a political groups, called for a ‘national unity government. Iraq's nearly two-decade-old political architecture maintains an ethno-sectarian power-sharing system, even if election results — especially for established but underperforming parties — are mostly irrelevant.

Mr. al-appeal Sadr's on the evening of June 9 may have been perceived as another tantrum thrown or merely a tactic after tossing the ball of government formation to the SCF and even independent MPs in recent months. But, alas and behold, on June 12, the Sadrist Movement's 73 MPs announced their resignations, plunging Iraq even further into political limbo.

Why the bill?

Before digging into the many scenarios for what can happen next, it is necessary to review the Food Security and Development Bill, which was just enacted by parliament. Its timing is critical for deciphering what the political elite truly values, as well as Mr. al-bigger Sadr's strategy.

A majority of MPs, 273 out of 329, voted in favor of the bill. Despite weeks of mutual recriminations, the SCF and the ASH came together. Even the Kurds, who had been given so little, voted in favor.

On the surface, the law appears to address a variety of issues. Specifically, it permits the government to obtain critical funding, as the delayed government formation process has hampered the adoption of a much-needed federal budget for 2022. 

According to Article 13 of the Federal Financial Management Law (No. 6/2019), Prime Minister Mustafa al-caretaker Kadhimi's cabinet was only entitled to carry out "day-to-day" government activities on May 15. Technically, this means that government expenditure will be limited to a pro-rata (1/12) of total real current spending for the fiscal year 2021, which concluded on December 31.

MEES estimated oil revenues for OPEC producers in March 2022, and Iraq is expected to receive $115 billion even if oil prices averaged $90 per barrel through the end of the year — which, given the current circumstances, is the low end. This is a $20 billion increase above the previous high of $94 billion set in 2012. 

Baghdad is already bragging about its record-breaking oil export receipts, which totaled $11.44 billion in just May. The funds, however, cannot be used without a budget or legally enforceable emergency spending legislation - a true dilemma for Baghdad's political elites.

The fundamental aim of this bill, according to both the executive and parliamentary departments, was to ensure food and agricultural security, hence its name. Iraq's food security concerns are very serious, despite the political maneuvering. 

After the restoration of economic activity following the coronavirus pandemic and the lengthy supply chain disruptions, global food, and grain commodity prices have been on an upward trajectory since the end of last year. The Russian assault on Ukraine has led costs to rise since February, making things even worse in 2022.

The cart before the horse

These were the justifications used to pass the measure. The devil, however, is in the details. When the specific appropriations per itemized expenditure and government institution are totaled, the final measure allotted only $4 billion, or 23 percent of the $17 billion total, for food security, agriculture, water, and grain imports. 

The Ministry of Electricity has proposed a budget of $2.76 billion (16%) for ‘external debts and payables for acquiring and importing gas and power’. These should satisfy Iran's debt as well as payments owed to the country's independent power producers. In other words, just $6.76 billion, or 39%, of the bill's total cost was spent on the issues it was designed to address.

In practice, the provinces will receive the majority of the funding, $7.8 billion (45 percent), either directly or through petrodollar allocations if they produce or refine crude oil. Iraqi Kurdistan will receive nothing in any case. This figure also includes expenditures for reconstruction in the country's freed areas and the socioeconomically problematic Dhi Qar Province.

While the federal Ministries of Finance and Planning are expected to approve, disperse, and track these funds as they have in the past, local provincial governors will have the initiative and finally say on how they are spent, in collaboration with often politically appointed middle management and their complex web of bureaucratic committees.

As a result, there may be plenty of room for corruption, whether through deceptive procurement processes or excessive payroll bloating through dubious initiatives and programs. Observers were concerned about the bill's transparency — or lack thereof — in the run-up to its passage. 

On the payroll growth front, the law increased it by $1 billion (6 percent) by hiring temporary and contract workers and even establishing a graduate program (see table 1). This was roughly the same as the $1.1 billion set aside for social security, health and education, war compensation, and internally displaced persons.

Into the political void: What happens now?

In the short run, there are two issues to consider. First and foremost, what will the Independent High Electoral Commission of Iraq do? Second, have the Sadrists decided to stop participating in the "political process"?

On the former, Article 15 of the Iraqi House of Representatives Elections Law (No. 9/2020), in its fifth section, states unequivocally that "if a seat falls empty, the candidate with the highest score in the electoral district should replace its incumbent." This is expected to have a significant impact on the SCF's fortunes, particularly in the southern provinces where they were closely trailing the Sadrists.

With their seats potentially bolstered, the SCF may be closer to establishing a government than they have been in the past seven months. However, they will require at least two-thirds of the parliament (220 MPs) to accomplish so. Even if the SCF wins all 151 clearly linked Shi'a seats in parliament (including the 73 seats abandoned by the Sadrists), they will still be short 69 seats (see table 2).

To put it another way, they won't be able to create a government until they join forces with the ASH — the big Sunni and Kurdish political players. Without a doubt, this influenced Mr. al-choice. Sadr's

Farewell ye year of the windfall?

Finally, Iraq's politics have complicated the country's economic direction once again. Oil prices are expected to continue high for the foreseeable future. The International Monetary Fund estimates that it will generate $1.4 trillion in additional revenue for Gulf oil exporters over the next four to five years.

While Iraq's neighbors prepare to use these large sums to diversify their economies and prepare for a future where oil's dominance in the global energy mix is increasingly challenged by efforts to achieve net-zero emissions, Iraq's executive branch is buffeted by a power struggle among the country's politicians.

Even the Oil Ministry's plans to spend $17 billion — both directly and through investment — to increase oil production capacity to 8 million barrels per day by 2028, which is essentially the lifeblood of Iraq's economy, are in jeopardy. The ministry was only given $340 million in the recently passed emergency spending measure. 

Even the reforms required to break Iraq's oil dependency, as outlined in the ambitious White Paper, will have to wait without a budget and a stable administration. With all of the interminable political squabbling that has occurred since 2018, an Iraqi cabinet's duration is becoming two years at best, rather than four.