New Iranian strikes on its Gulf neighbours, a dangerous stalemate in the Strait of Hormuz and an inconclusive cycle of proposal and counterproposal between Washington and Tehran are straining many Middle Eastern economies. Iraq – a crucial regional crossroads – has more to lose from this conflict than most.
The country is in dire straits. A government that usually receives 90 per cent of its income from oil has seen this revenue contract sharply. Unlike some of its fellow energy producers, Baghdad lacks the financial cushion of trillion-dollar sovereign wealth funds to mitigate this. “We spend every penny we have,” Ahmed Tabaqchali, chief investment officer of AFC Iraq Fund, told The National recently.
Iraq’s government, soon to be headed by prime minister-designate Ali Al Zaidi, is caught between the acute shock of the Iran war’s effect on the global oil economy as well as the chronic challenges of insufficient infrastructure, domestic monetary liabilities, endemic corruption and weak governance.
The International Monetary Fund has already forecast Iraq's economy to contract by 6.8 per cent this year, an April downwards revision of more than 10 percentage points from its October forecast.
Iraq matters. As well as its vast oil reserves and strategic location, it is uniquely positioned to shape the balance of power across the Middle East. Its precarious balancing act between Iranian and US agendas has implications for regional and global security. It is for these reasons that those who value stability - for the Iraqi people’s sake as much as that of the Middle East – should be more proactive in engaging with Baghdad.
For its part, the UAE has been a major supporter of the Iraqi economy. In 2021, it committed $3 billion in investments for Iraqi development and growth. The Emirates also remains a leading trade partner, with trade exceeding $27 billion annually as of December 2024. Were Iraq to benefit from more multi-faceted economic engagement, it would be in a much stronger position to weather the kind of storms the region is experiencing.
Chinese-led infrastructure improvements, more Gulf investment and integration, American technological expertise and financial clout, plus EU input on regulation and sustainability would be a truly powerful combination. It would also present an important counterweight to what an economically ailing and “resistance”-fixated Iran has to offer.
Iraq's debilitating issues with corruption and governance cannot be overlooked; it is on the country’s political leadership to make real progress on this. But one need only to look to neighbouring Syria to see how a state whose war ended 18 months ago is rapidly attracting investment and financial support to make its transition away from war permanent. With the right will and partnerships, it is possible to extend the kind of resilience seen in the Gulf over the past two months to other consequential parts of the Middle East.
