Iraq seeks Gulf funds to stave off liquidity crisis
BAGHDAD--In his first official foreign visit, Iraq’s incoming finance minister travelled to Saudi Arabia, a sign of warming ties between the two countries after decades of tensions.
Iraqi Finance Minister and acting Oil Minister Ali Allawi arrived in Saudi Arabia on Friday to seek emergency funds to stave off an impending financial crisis brought on by collapsing oil prices, Iraqi state media reported.
In an interview with state television before his departure, Allawi said his priority would be to secure funds to plug gaps in Iraq’s budget. “Iraq is in need of immediate monetary support so that the government can fulfill its obligations towards its employees,” he said.
Iraq is facing a liquidity crisis following the collapse of crude oil prices – which have dropped from more than $50 per barrel last year to around $20 per barrel in recent months.
The downward trend has sparked fears over whether the government will be able to pay salaries to some four million state workers, as well as pensions and welfare to another four million people.
The government budgeted almost $4 billion a month for public salaries in 2020, but it only earned $1.4 billion in April by selling crude oil, virtually the only way authorities can fund official expenditures.
Saudi Arabia and Iraq have agreed to coordinate with all oil producing countries to restore balance to the oil market, according to the official Saudi Press Agency (SPA).
The accord came during a meeting between Saudi Energy Minister Prince Abdulaziz bin Salman and Iraqi Deputy Prime Minister Ali Allawi.
Allawi said the two had reached a deal on investment for Saudi companies in the Okaz gas fields.
The two sides agreed to improve “basic factors in the petroleum market with start of implementing the OPEC-plus accord and agreed on the necessity to pursue action with all producers to speed up restoration of markets’ balance, affirming their countries’ firm commitment to implementing the agreement,” SPA noted.
Ahead of Allawi’s trip, an Iraqi government source told Agence France-Presse that the minister would also travel to Kuwait and the United Arab Emirates “to gather financial support for Iraq.” Prime Minister Mustafa al-Kadhimi is also likely to visit the Gulf, the official said.
Kadhimi took office in early May after months of political deadlock and is known to be a personal friend of Saudi Crown Prince Mohammed bin Salman bin Abdulaziz.
Experts said that the two countries may benefit from Kadhimi’s close ties to the West, which he developed while serving as head of intelligence. Kadhimi’s appointment was welcomed by the United States, which swiftly granted Iraq a 120-day extension on a waiver allowing it to import Iranian gas to feed its worn-out power grid.
Washington has insisted that Iraq wean off itself from Iranian energy supplies and partner with American or Gulf companies to shore up its overstretched electricity sector. Last year, Iraq signed a landmark deal with the six-nation Gulf Cooperation Council for a transmission line to import 500 megawatts of electricity to its grid this year.
The 300-kilometre (200-mile) line would run from Kuwait to Iraq’s southern port of Faw and be financed by the GCC (Kuwait, Saudi Arabia, the UAE, Qatar, Oman and Bahrain), according to the electricity ministry.
A second Iraqi official told AFP that the country’s previous cabinet had considered asking Kuwait to accept a delay in the monthly reparations payments it makes to compensate for Saddam Hussein’s invasion of the Gulf State in 1991.
Analysts said that the Gulf countries, especially Saudi Arabia, sought to restore strong relations with Iraq in order to curb Iranian influence and contribute to Iraq’s post-war stabilisation.
They also noted that the growing protest movement against the political elite in Iraq and Iranian influence could be an opportunity for Saudi Arabia to re-build ties with Iraqis, noting that Riyadh has been forging links with Baghdad since re-opening its embassy in the Iraqi capital in 2016.
After Allawi’s visit, Saudi Arabia announced it would soon send a new ambassador to Iraq. The diplomat will replace Abdul Aziz Al Shammari, who served as ambassador to Iraq from December 2017 until last year.
Saudi Deputy Defence Minister Prince Khalid bin Salman said Riyadh looks forward to “Iraq rising from the ashes to regain its status as one of the strong and resilient pillars of the Arab world,” SPA quoted.
“The Kingdom stands with Iraq to support it in its journey towards progress, peace and brotherhood with its Arab neighbors, for the benefit of Iraq and its dear people,” he added.