Iraq’s Bankrupt Economy: Biden’s Foreign Policy Challenge

ECONOMYCOMMENTARY 25.12.2020
Yasir Rashid Assistant, Economy

Beyond Iraq’s economic woes, the Biden administration’s obstacles include Iran and its backed militias, the repercussions of the withdrawal of US troops, and ISIS’ re-emergence.

Several foreign policy issues await President-elect Joe Biden. Despite the ambiguities about Biden’s policies towards the Middle East, especially Iraq, in an analysis by Foreign Policy, Farhad Alaaldin, chairman of the Iraq Advisory Council and political advisor to the last two Iraqi presidents, and Kenneth M. Pollack, a resident scholar at the American Enterprise Institute, highlighted the economic crisis in Iraq and its challenge to the administration of US President-elect Joe Biden, saying that “a new Iraq crisis is the last thing that Joe Biden needs. Unfortunately, it may be the first foreign-policy problem he has to face”.

What are the problems?

Many economic problems challenge the Iraqi government, and there are numerous structural elements rooted in the emergence of the country’s current dire economic conditions. According to Alaaldin and Pollack: (i) corruption and weak governance, (ii) the Iraqi economy’s high dependence on the government, (iii) an unprecedented drop in world oil prices, and (iv) the spread of Coronavirus are the main economic problems, particularly for the current year (2020). Unfortunately, these economic troubles feed into each other and also, they have a potential to shake the already unstable political and social system in Iraq.

The Iraqi government has faced a number of economic problems and even difficulty in paying its employees. Moreover, Iraq’s central bank reserves have plummeted, and the country is struggling to pay direct salaries and pensions, as well as to cover essential services and operating costs. An estimated $7 billion a month ($5 billion in direct salaries and pensions and $2 billion in essential services and operating costs) is needed to tackle these obstacles.

As Iraq heads towards financial collapse, and considering its current fragile state, financial ruin could lead to the fall of the country’s political system. Furthermore, if the situation is not mitigated, a new phase of sectarian strife may ensue. Alaaldin and Pollack also emphasize that in January 2021, if the Iraqi government fails to issue the salaries of state employees, it could lead to extreme instability and violence.

Iraq’s economic woes are not the only foreign policy headache for the Biden administration. Rather, confrontation with Iran and its backed militias, the security vacuum created by the withdrawal of US troops, and the dangers posed by the re-emergence of ISIS are other major political-security challenges, as well as threats, that the Biden administration may face. In this regard, Alaadin and Pollack warn of the consequences of the expansion of Iranian influence in Iraq. In other words, they believe that if the United States does not seize the opportunity of the Prime Ministry of Mustafa Al-Kadhimi, a technocrat relatively close to the United States, Iran-backed armed militias will seek to fill the vacuum and usurp the position of Iraq’s primary security forces. These same groups would also fight for territory to control and might attempt to take control of lucrative resources, such as oil fields, ports, border crossings, large industries, agricultural land, and private property.

Iraq, US, Iran, Economy

Iran-China Relations: Illusions and Realities

Yasir Rashid

Although an agreement has been signed between Iran and China, there are several issues, including differences and similarities between the two countries, which raise many questions.