Country Risks For Investors Operating In Iraq

01 August 2019

Country Risks For Investors Operating In Iraq While Islamic State (IS) no longer holds territory in Iraq, it remains able to launch frequent improvised explosive device (IED) attacks in the country. Protests in southern provinces will also pose security risks to firms operating in the affected regions. The investment environment for foreign firms will remain challenging in Iraq in the medium term, although reconstruction efforts will provide significant investment opportunities in a number of non-oil sectors.

Security Environment

Since its official defeat by the Iraqi army in December 2017, IS no longer holds territory in the country and has resorted to insurgency-style terrorist attacks.

The group has capabilities in Diyala, Ninawa, Kirkuk, and Salaheddine provinces.

IS demonstrates continued capabilities to launch regular IED attacks. In the medium term, IS's principal targets are expected to remain the Iraqi military and security forces.

Country Risks For Investors Operating In IraqAssets in the south will face a reduced threat from IS, although any attacks are likely to target the energy sector, due to its strategic economic importance for the Iraqi government.

Protest risks are elevated in Iraq, particularly during the summer months. Basra and urban areas in the south experienced widespread unrest in 2018, as the provision of basic services faltered.

In July 2018, thousands of Iraqis protested in Shia-majority provinces, after Iran cut electricity supply to the country.

Protests re-emerged in 2019 and are likely to continue throughout the summer months. Since late June 2019, a coordination committee has organized weekly protests; security forces have used tear gas to disperse protesters, leading to a number of injuries.

Protests are unlikely to directly target commercial mining operations, but bystanders in urban areas may face elevated collateral injury risks.

Trading Environment

Iraq’s economy will be buoyed by elevated government spending, and year-on-year real GDP growth is forecasted at 3.9% in 2019.

The government approved an expansionary budget for 2019, with the US$112 billion spending plan representing a 45% nominal increase on 2018's spending levels.

Significant government spending should moderate the impact of weak oil production growth in the wake of the continued implementation of OPEC production cuts.

Pricing outlook IraqOil accounts for almost 90% of government revenues, so Iraq’s economic and fiscal position is highly exposed to any downturn in oil prices. Iraqi oil exports are also particularly vulnerable to escalating interstate disputes in the Strait of Hormuz, given the absence of alternative shipping routes.

Foreign exchange reserves are strong, at US$48.9 billion by the end of 2018, equivalent to approximately 9 months of import cover. Iraq is likely to maintain the dinar’s peg to the US dollar, but it could be undermined by a prolonged period of low oil prices.

Investment Environment

The politically motivated cancellation of contracts in Iraq is now uncommon. In 2014, Iraq’s then-oil minister declared that the government would cancel all of Iraq’s contracts with Turkish firms if Turkey continued to facilitate independent Kurdish oil exports.

On the back of their joint opposition to Iraqi Kurdish independence aspirations, reduces contract alteration and cancellation risks for Turkish companies.

Payment delays are more likely, arising from changes to the government’s political make-up and an inability for the state to pay contractors. Contracts for construction projects that have been signed with provincial governments are vulnerable to regular switches between Sunni-and Shia dominated political parties.

Payment delays due to instability reduced oil revenues during the conflict years have significantly depleted government revenues.

Following the end of the conflict with IS, the infrastructure deficit remains high. The estimated cost of rebuilding infrastructure is US$82.2 billion, according to the World Bank.

Iraq has the third lowest foreign direct investment stock in the MENA region, and the second lowest FDI-to-population ratio — only outperforming Yemen.

Most of the country’s US$10.1 billion FDI stock is held in its hydrocarbons industry. However, reconstruction projects will unlock significant growth, with the construction sector expected to see annual average growth of 6.9% in the 2019-2023 period.

5 Key Takeaways

  • IS demonstrates continued capabilities to launch regular improvised explosive device (IED) attacks in Diyala, Ninawa, Kirkuk and Salaheddine provinces.
  • Since late June 2019, a coordination committee has organised weekly protests and security forces have used tear gas to disperse protesters.
  • Year-on-year real GDP growth is forecasted at 3.9% in 2019.
  • Foreign-exchange reserves are strong, at US$48.9 billion by the end of 2017, equivalent to 8 months of current external payments.
  • Contracts for construction projects that have been signed with provincial governments are vulnerable to payment delays.

The monthly Risk Outlook is supported by our proprietary country risk rating tool, World Risk Review (WRR) which provides risk ratings across nine insurable perils for 197 countries. The country risk ratings are generated by a proprietary, algorithm-based modelling system incorporating over 200 international sources of data.

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In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Eritrea, Iraq, Mexico and Zimbabwe all of which have been the subject of recent enquiries from our client base.

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  • Eleanor SmithEleanor Smith

    Eleanor Smith is a Senior Political Risk Analyst within Marsh JLT Specialty’s Credit Specialties team. At Marsh JLT Specialty, Eleanor analyses developments in political risks, and advises clients on their effect in a range of sectors. Eleanor is also responsible for delivery of World Risk Review, JLT’s country risk ratings platform, to clients and prospects.


    Eleanor has a first-class degree in History with Spanish from UCL, and a Masters in International Public Policy from the same institution. With experience in a range of sectors, including diplomatic missions and not-for-profit, Eleanor can help clients understand their risk exposure.

    If you would like to talk about any of the issues raised in this article, please contact Eleanor Smith, Senior Political Risk Analyst on
    +44 (0)20 8108 9544.

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