The relatively small protests that have broken out in Iraq after Baghdad failed to pay state employees their July salaries, which have so far been tempered by the focus on the Ziyarat al-Arbaeen Shia pilgrimage, could turn violent if the delays continue, Dr. Ronen Zeidel told The Jerusalem Post on Thursday.
Iraq spends approximately $6.5 billion a month on public sector salaries, pensions, and social welfare payments, according to the country’s Finance Ministry. The wages were allegedly delayed over Baghdad’s struggle to manage the oil export crisis that hit the region after Iran began blockading the Strait of Hormuz.
According to Iraq’s Multidimensional Poverty Index, around 17.5% of the population live in poverty, a percentage that could naturally increase should wages be withheld long-term.
Iraq’s economy remains heavily reliant on oil, which accounts for 90% of government revenue, 95% of export earnings, and more than 53% of the country’s gross domestic product.
“When you don’t export your oil, and oil is the main product of the Iraqi economy, you don’t have money,” Zeidel, a researcher at the Moshe Dayan Center, said, adding that the issue of America’s hold on the money created yet another complexity for Baghdad to navigate.
“The problem is that dollars are often not released, or are not released at the pace that Iraq needs. The Iraqi banking system and financial system are not operating according to American regulations, and there are significant problems with the banking sector,” he explained.
US controls Iraqi oil revenues, using leverage to push Baghdad to act in its interests
The United States controls the revenues from Iraq’s oil fields through the Development Fund for Iraq (DFI) held in New York, which allows Washington to leverage Iraq’s revenue to make changes to its regulatory systems or control its relationship with Iran.
“The Americans have been working to reform this banking system over the past couple of years, but that work has not yet been completed. Iraq has been used for laundering dollars and transferring them to Iran. Some banks are on the American blacklist for working with Iran and with Iraqi militias, and that is what the Americans want to prevent,” Zeidel continued. “As long as Iraq does not carry out the necessary reforms, there will continue to be difficulties in accessing dollars. When you do not have dollars, you cannot pay all of the state employees who rely on these payments.”
If the payments are not paid, and the wait goes on too long, it can be expected that the protests would increase, potentially becoming more “violent,” he predicted.
Describing a situation comparable to the demonstrations that broke out in December in Iran, which were initially about the country’s economic crisis but developed into a protest against the Islamic regime, Zeidel said there were a number of “converging issues” tied to geopolitics that could also potentially see unrest escalate.
Framing Iraq as the child of divorced parents, Iran and the US, he outlined that in many ways its dependencies on the US for financial support and Iran for gas have left Baghdad pulled in both directions, trying to manage critical relations.
With temperatures only falling slightly short of an “unbearable” 50° Celcius in Iraq this week, Iran’s gas supply is crucial for maintaining electricity. Tehran supplies between a third and 40% of Iraq’s gas and power needs, though supplies have repeatedly been paused and power cuts have become a common issue.
“America is the father. Under Trump, America has decided to spoil Iraq. Now Iran is angry with the Iraqis because they turned to America, and America is entering the country economically. This could also help the Iraqi economy through the entry of American companies, the creation of more employment opportunities, and similar measures,” he said.
“However, Iran could also harm Iraqi politics and Iraq itself, and the Iraqis understand that. Iran still has leverage over Iraq.”
Oil agreements between Iraq and US companies, valued at $200 b., were finalized by the prime minister at a July meeting in the US
Iraq’s oil minister said in an interview with state television last month that agreements signed between the oil ministry and US companies during Iraqi Prime Minister Ali al-Zaidi’s visit to the US in July were estimated at $200 b.
Zeidel said that Baghdad failed to secure any exemptions for Iraqi oil tankers during Zaidi’s visit to Tehran last month, or a deal to increase the supply of gas, though he did sign several joint agreements concerning foreign affairs, finance, the economy, and energy. Iraq had already signed a 5-year gas supply deal with Iran, with pumping rates of up to 50 million cubic meters per day, in March, though Iraq has been forced to trade crude oil and fuel as the US won’t release funds that would violate its sanctions.
Zeidel also noted that reports in Arab media alleged Iran demanded that Zaidi pay around $11 b. in accumulated debts for Iranian gas imports during his recent visit to Tehran.
Al Hurra reported that Baghdad countered by offering to transfer $1 b. to Saudi Arabia to cover Hajj-related fees owed by Iran, allowing Baghdad to manage its relationship with Washington, though this was reportedly rejected.
“Iran doesn’t like the fact that the Americans are getting into Iraq and to its economy on such a massive scale,” Zeidel shared.
