Country risks for investors operating in Iraq

06 December 2019

Country risks for investors operating in IraqIraq will face a number of security, investment and trading challenges in the coming months. In this article we provide a detailed forward-looking assessment of developments in the country.

Violent anti-government demonstrations are likely to continue in the coming months, as protesters demand action on corruption and improved service delivery.

Protests will increase political instability in Iraq and may disrupt government oil revenues.

Security Environment

Since October 2019, Iraq has experienced a spate of large anti-government protests, triggered partly by a decision to dismiss Abdulwahab al-Saadi as a counter-terrorism forces general.

Protests initially occurred in Baghdad but spread to the central and southern provinces of Babylon, Basra, Dhi Qar, Karbala, and Kirkuk.

Protests also encompass criticism of government corruption and poor provision of services. Security forces have responded with the use of water cannons, tear gas, rubber bullets, and live fire, leading to the deaths of at least 400 protesters.

Approximately two million people attended demonstrations in Baghdad on October 29.

Protests are likely to continue in the next 12 months, as demands for improved provision of services and jobs are unlikely to be met by the government.

Protests will be concentrated in urban areas, particularly affecting Baghdad and southern provincial capitals.

Country risks for investors operating in IraqProtests are likely to cause significant property damage, as participants target government buildings. Blockades are also likely to disrupt access to oil and gas assets.

In Basra, tankers have been repeatedly unable to access oil fields due to protest activity.

However, direct attacks on oil assets are less likely. The government estimated in early November 2019, that disruption at the Umm Qasr Port has caused economic loss of approximately US$6 billion.

Trading Environment

Protest activity is likely to weigh on Iraq’s economic outlook. The oil sector accounts for approximately 85% of government revenue, and persistent disruption to the operation of oil fields and refineries will leave the government exposed to a sharp reduction in revenues.

In 2020, this could limit the government’s ability to respond effectively to protesters’ demands.

Following the initial wave of protests, Prime Minister Abdul Mahdi promised to introduce a 50% local worker quota in future contracts with foreign companies, while the government is also expected to increase spending on wages and social transfers in 2020.

Government spending is forecast to grow by 4% year over year in 2020, although this figure could be lower if oil revenues are disrupted.

While this is a significant deceleration on the 29.1% year over year increase expected in 2019, spending growth will contribute to a budget deficit of 6.8% of GDP in 2020.

Iraq should be able to fund its fiscal deficit through additional debt issuance. The government’s total debt load is sustainable at 51.1% of GDP in 2018, providing the government scope to seek additional borrowing.

Moreover, the international community will be keen to support economic stability in Iraq, encouraging sustained financial assistance from key partners and concessional lenders.

Investment Environment

Pricing Outlook IraqImproving relations between Baghdad and the Kurdish Regional Government (KRG), should reduce the likelihood that the federal government will take action against firms facilitating independent oil exports from Iraqi Kurdistan.

Progress between the two parties in recent months on an oil-for-budget deal is likely to support this outlook, although political instability at a federal level as a result of protests may delay a 2020 budget agreement.

In recent years, the federal government indicated that contracts signed with the KRG without its approval would be considered illegal.

Legal and regulatory risks will remain elevated for foreign investors in non-oil industries.

Laws and regulations are not evenly enforced throughout the country and the potential for corruption complicates business relationships and government procedures.

Iraq’s non-membership of the World Trade Organization (WTO) will continue to be a major impediment to businesses engaged in international trade, resulting in opaque tariff schedules and customs procedures.

A flat 5% import tariff has been replaced since 2016 with a multiple tariff rate regime, which ranges from 0-80% for agricultural goods and 0-40% for non-agricultural goods.

5 Key Takeaways

  • Iraq has experienced protests since October 2019, and protests over service provision are likely to continue in urban areas over the next 12 months.
  • Following the initial wave of protests, Prime Minister Abdul Mahdi promised to introduce a 50% local worker quota in future contracts with foreign companies.
  • Protests are likely to cause significant property damage, as participants target government buildings.
  • Blockades are also likely to disrupt access to oil and gas assets. In Basra, tankers have been repeatedly unable to access oil fields due to protest activity.
  • Government spending is forecast to grow by 4% year over year in 2020, although this figure could be lower if oil revenues are disrupted.

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 Argentina, Lebanon, Tanzania and Mozambique and 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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