Finding Iraq’s Economic Miracle

Photo by Getty Images; Illustration by Bloomberg View Close

Photo by Getty Images; Illustration by Bloomberg View

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Photo by Getty Images; Illustration by Bloomberg View

For many in the U.S., the 10th anniversary of the invasion of Iraq has been an occasion for settling scores and playing “what-if” games with history. Iraqis don’t have that luxury -- as evidenced by the day’s wave of bombings and assassinations that left at least 50 dead.

For Iraq, this anniversary underscores the need for Prime Minister Nouri al-Maliki and his government to find a new sense of responsibility and engagement. Otherwise, the country’s future may be as dark as its recent past.

The latest political crisis in Baghdad stems from the resignation of Finance Minister Rafi al-Issawi at a March 1 rally of fellow members of Iraq’s Sunni minority. They were protesting what they view as efforts by Maliki, a Shiite, to trample their rights.

Many Iraqis think Maliki’s strong-arm moves in recent months -- detaining thousands of Sunnis on terrorism-related charges, arresting Issawi’s bodyguards in December and forcing through a 2013 budget that shortchanged Iraq’s semi-autonomous Kurdish region on oil revenue -- were designed to consolidate his support among Shiite hardliners. If so, the strategy doesn’t seem to have worked: The charismatic Shiite cleric Moqtada al- Sadr has begun holding his own anti-government rallies. The favorite guessing game in Baghdad these days is whether Sadr will join with the pan-sectarian Iraqiya Bloc to try to force Maliki from power now, or bide his time until next year’s parliamentary elections.

Market’s Influence

Can anything compel Maliki to forge an accommodation with Sunnis, his Shiite rivals and the increasingly independent Kurds? Certainly not the U.S., which despite giving billions of dollars in aid ($57 billion from 2003 to 2012, and about $2 billion this year) has virtually no influence in the country it tried to remake.

It’s possible, however, that market forces have a shot. Maliki’s government is sustained by oil-fed graft -- Iraq surpassed Iran as the Organization of Petroleum Exporting Countries’ second-largest exporter last year. If the flow of oil revenue dries up, so will the government’s political support. Thus it may be good news that when the government took bids on a fourth round of oil licenses last year, none of the major Western companies bothered to show up.

There are many reasons for this: corruption, political instability, bureaucratic hassles and the failure of the government to rebuild its crumbling pipelines and storage facilities, as well as fears about security in the capital. Besides, there’s now a better partner for the oil companies: the semi-autonomous Kurdistan Regional Government. The Kurds have outraged the central government by signing more than 50 independent deals with foreign companies, including Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX), and are moving oil across the Turkish border in trucks rather than using pipelines controlled by Baghdad.

Maliki must realize that his bid to be Iraq’s founding father is doomed unless he improves the economy. A first step would be to offer friendlier terms to foreign oil companies. Instead of insisting on technical service contracts, in which the companies get only a flat fee per barrel, Maliki should agree to share the oil that comes out of the ground, as the Kurds do. (To his credit, he did discuss this with Exxon Chief Executive Officer Rex Tillerson in January in Baghdad.) A bigger step would be for the government finally to pass a comprehensive deal to share the nation’s oil revenue -- an initiative that has been stuck in the legislature since 2007.

Neighbors’ Role

A thriving Iraq will depend on stronger relations with its neighbors. Turkey has to play a careful game. While it is reaping an economic boon from the Kurds -- total exports to Iraq broke $10 billion last year -- Turkey has little to gain from instability or civil war in its eastern neighbor. Nor do Turkish leaders want to see the emergence of a fully independent Kurdistan, which might embolden Turkey’s Kurdish minority. Instead of antagonizing the Baghdad government with talk of building a pipeline from the Kurdish area across its border, they should encourage Massoud Barzani, president of the Iraqi Kurdistan Region, to negotiate a deal he and Maliki can live with. That’s hard but not impossible: The Kurdish leadership seems to understand that it isn’t in a position to exert full control over Kirkuk and that an independent Kurdistan without it may not be worth having.

Then there is the other regional Sunni power: Saudi Arabia. Although the Saudis don’t like the oil competition, the last thing they should want is for Iraq’s Shiite leaders to feel pushed into the patronage of Iran. The Saudis should open an embassy in Baghdad, where they’ve had none since 1990. More substantially, Saudi Arabia and Qatar could make a gesture to Maliki by doing more to keep the weapons they supply to opponents of Syrian dictator Bashar al-Assad -- whom Maliki unwisely supports -- from ending up in the hands of Sunni militants in western Iraq. The anniversary-day explosions in Shiite areas of Baghdad are a reminder that Maliki’s efforts to clamp down on Sunni violence aren’t entirely unjustified.

Without ignoring what’s gone wrong, this anniversary is best used to decide what Iraq can do right. Our feeling is that economic growth is the key, which requires Maliki’s ensuring the human and political rights of the Sunnis and reaching an accord with the Kurds. If his common sense and political pragmatism seem to be waning, perhaps the oil markets can help set him straight.

To contact the Bloomberg View editorial board: view@bloomberg.net.

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