Country Report Iraq October 2009

Summary

The drawdown of US forces, and the continued weakness of central authority, may allow militia and insurgent groups to re-establish themselves in some areas, although violence is unlikely to return to 2006-07 levels.
There is a growing likelihood of a realignment of Iraqi politics, with the prime minister, as head of the State of Law list, set to run against his former allies in the Iraqi National Alliance in the parliamentary election in January 2010.
The role of foreign oil companies will gradually expand, as they are drawn in by the unique opportunity presented by Iraq's massive oil reserves.
We expect the fiscal deficit to narrow markedly in 2010-11, to an annual average of US$4.4bn (equivalent to 4.6% of GDP), compared with an estimated US$9.5bn in 2009, as oil revenue recovers.
Economic growth is likely to strengthen in 2010-11, as foreign direct investment in a range of oil and infrastructure projects picks up, and improving security boosts consumer demand and, in turn, wholesale and retail trade.
Iraq's current account will largely track movements in oil export receipts. Having fallen sharply in 2009, export earnings are forecast to recover strongly in 2010, although earnings growth will be held back in 2011 as oil prices fall.

Nouri al-Maliki has launched his own list for the parliamentary election, once again named the State of Law. The coalition is at present relatively lightweight, however, and does not include any other major parliamentary parties.
Barham Saleh has been appointed prime minister of the Kurdistan Regional Government (KRG). Mr Saleh has outlined his priorities, which include administrative reform and resolving issues with the federal government.
In a major coup for the oil minister, Hussein al-Shahristani, two of the consortia that pulled out of the first oil licensing round in June have revised their terms in line with the Ministry of Oil's wishes.
The KRG has sought to minimise the fallout from the disclosure by the Oslo Stock Exchange that the KRG natural resources minister, Ashti Hawrami, bought a 5% stake in a Norwegian oil firm last year.
The Ministry of Finance has submitted its draft 2010 federal budget to the Council of Ministers for debate. According to a government spokesman, the draft budget envisages spending of US$67bn, up from US$62bn in 2009.
Rising food prices have pushed inflation higher, with core inflation particularly affected. According to the Central Bank, core inflation reached almost 11% year on year in August, the highest level since December 2008.

This report covers the following industry codes:
SIC Code: 60;10;47;49
NAICS Code: 52;212;48;22