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Analysis

Will Saudi Economic Promises Treat Baghdad’s Problems?

Tuesday 26 May 2020
Will Saudi Economic Promises Treat Baghdad’s Problems?

Alwaght- In first foreign policy move after the vote of confidence to his cabinet last month, the new Iraqi PM Mostafa al-Kadhimi has sent his minister of finance to Saudi Arabia on Saturday for talks with the Saudi officials.

Symbolically, the move by the new PM shows the continuation of several-year efforts by various Iraqi governments to improve Baghdad relations with Riyadh. Al-Kadhimi’s predecessors like Adel Abdul Mahdi and before him Haider Al-Abadi and even the Saudi officials emphasized in the past few years on recalibration of mutual ties.

But their efforts did not reduce the competition and hostility was exchanged between the two countries. For example, while currently the Saudi and Iraqi governments are busy exchanging diplomatic formalities, Iraqi lawmakers are drafting an anti-Saudi law for the vote of the parliament.

Faleh al-Khazalee of Fatah Coalition on Thursday commented on the parliamentary motion, saying “It is important to hold Saudi Arabia responsible as there are some 5,000 Saudi terrorists in Iraq.” He continued that the draft law was ready and set to be delivered to the parliament, hoping that the political forces will vote in its favor.

“The Saudi regime has committed many crimes and violations against the Iraqi people. Saudi Arabia fights nations that struggle against the US and Israeli violations. The Saudi regime targets the Iraqi people and the people of the region.” 

The agreement by Saudi Arabia to return its ambassador to Iraq “as soon as possible” to resume his duties as a result of the Iraqi delegation’s negotiations with the Saudis shows that al-Kadhimi has decided to close eyes to the disputes and settle the Iraqi problems even if it takes asking for help from countries with records of interference in the home Iraqi affairs. 

The visit to Saudi Arabia, as the post of the Iraqi minister leading the delegation shows, has an economic aspect. Iraqi embassy in Riyadh published a statement on the visit, saying that the Iraqi PM in a letter to the Saudi Crown Prince Mohammed bin Salman expressed his will for activation of cooperation in “all fields” with a faster speed for the good of the two countries. During their meetings, the two sides insisted that reopening Ar’ar border crossing between the two countries can facilitate a jump in the two countries’ economic cooperation and investment. 

As another achievement of the visit, Iraqi Deputy PM Fuad Hussein said that Baghdad and Saudi companies agreed for investment in Iraq’s Okaz gas field. He also hoped to see the Saudi “trade workshop” would be soon launched in Iraq. 

Iraq is facing several problems especially after the free fall of the prices of oil as its key source of income. The country has a single-product economy fully reliant on oil sales. This means that al-Kadhimi has ahead no shortcuts to reverse the damages caused by loss of oil revenues. The new PM has ahead of him the heavy costs of reconstruction after war on the ISIS, the constant bills of the same war, and the public expectation from him to improve public services and living conditions in the country, all these can bring a fate similar to that of the previous PM if he fails to show some progress. 

Now the question is that does al-Kadhimi have the right prescription for treating the economy? 

Despite the happy face put on by the Saudis for the Iraqi delegation and even announcing readiness to provide Baghdad with a multi-billion dollar loan, the fact is that the Saudi economy has sustained a hard blow from the oil slump and bin Salman is now seriously concerned as risks of a bigger budget deficit, shutdown of a major part of the $779 billion national economy, and increase of the unemployment amid deepening coronavirus crisis haunt the Saudi economy. The energy sales account for nearly two-thirds of the Arab kingdom’s income. This is while the economy continues to pay the huge bills of the war on neighboring Yemen and the Prince Mohammed efforts to attract foreign investment to press ahead with the Vision 2030 development plan projects have gone nowhere. Missing the objectives pushed the Saudis to sell 5 percent of their oil giant Aramco.

In the past, Saudi Arabia promised to provide financial aids to Iraq and invest in its economy but none were realized. The Saudis made unfulfilled promises not just to Iraq but to Pakistan, their traditional ally. Last year and during Prince Mohammed's trip to Islamabad, he vowed to invest $20 billion in the Pakistani economy. PM Imran Khan of Pakistan several times complained that Saudi Arabia did not fulfill its promises.

In the joint energy investment promises Saudi Arabia seeks its own interests. In February 2020, the crown prince in an interview told the Saudi paper Jeddah that “very soon you will hear about the kingdom’s capability to export gas and petrochemical products.” Saudi Arabia invested in gas to cut reliance on oil and produce electricity. The Iraqi delegation's visit gives the Saudis a proper chance to raise with Baghdad gas production in the joint gas fields.

On the other hand, Saudi Arabia finds Iraq a serious rival in the oil market. Iraq is now the world’s second-largest oil producer. And now the competition is underway between them over the East and South Asia. Saudi Arabia pushes to restore its upper hand in the Indian market by contracts like the agreement to buy 20 percent of Indian Reliance Industries’ oil and petrochemical business and also by the deal to construct an oil refinery with a 1.2 million oil barrel per day refining capacity in association with the Abu Dhabi National Oil Company (ADNOC).

Kepler Group’s figures published on Saturday show that Saudi Arabia in April exported 1.085 million oil barrel a day to India, beating Iraq which exports 760,000 barrels a day there. Since 2017, Iraq became a top oil exporter to India after the US embargo on Iran and Venezuela oil exports.

The director of the Indian strategic petroleum reserves has recently said that New Delhi seeks cheap oil shipments from the Middle East as it wants to swiftly maximize its strategic reserves.

Experts say although Iraq managed to secure its place in the Indian oil market through supplying Basra heavy crude which is popular with the Indian refineries, it still needs to work more to meet the Indian energy needs.

It remains to see if al-Kadhimi’s optimism about the economic remedies promises by the Saudis is right, while bin Salman needs the most the same remedies for his economic ambitions.

Tags :

Iraq Saudi Arabia Investment Cooperation Al-Kadhimi

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