Country Report Iraq April 2009

Outlook for 2009-10

• The drawdown of US forces from early 2009, and the continued weakness of central authority, may allow militia and insurgent groups to re-establish themselves in some areas, although violence should not return to 2006-07 levels.
• The potential for a fundamental realignment of Iraqi politics is rising, with the prime minister, Nouri al-Maliki, leaning towards a nationalist alliance involving more secular and tribal forces.
• Iraq's foreign policy will be focused on carving out a more independent role for the countrya task made easier by the start of the US troop withdrawal.
• Despite the lack of a federal hydrocarbons law, the government will persist with its efforts to award long-term oilfield development contracts to international companies.
• Iraq's fiscal account is expected to turn sharply into deficit over the forecast period, as oil prices fall far below their peaks of last year, and we expect the budget to return an average deficit of US$19bn in 2009-10.
• Real GDP growth in 2009-10 is forecast to slow, from an estimated rate of 7.8% in 2008 to an average of 5.7%, as a tighter fiscal stance has a knock-on impact across the economy.
• The current account is forecast to return a wide deficit of US$12.6bn this year, forcing the Central Bank of Iraq to draw down its foreign-exchange reserves.

Monthly review

• Clashes have broken out between some of the Sunni-dominated tribal Awakening groups and the security forces, as a result of a string of arrests and frustration over the non-payment of salaries.
• Turkey's president, Abdullah Gul, has visited Iraqthe first visit by a Turkish president in 30 years. The Iraqi Kurdish leadership also took advantage of the visit to seek to improve the two sides' often-strained relationship.
• The Presidential Council has finally approved the 2009 budget, which is some 25% smaller than the original draft drawn up last October.
• The Ministry of Oil has added nine international oil companies to its list of foreign oil firms prequalified to participate in the country's oil development rounds.
• The growing power struggle between the oil minister, Hussein Shahristani, and the deputy prime minister, Barham Saleh, appears to have lain behind a reshuffle at the oil ministry in early April.
• Oil production declined further in the first quarter of 2009, underlining the urgent need to invest in Iraq's ageing infrastructure.

This report covers the following industry codes:
SIC Code: 60;1
NAICS Code: 52;11