The government of Iraq is hoping that a new OPEC deal will help the war-weary country generate enough revenue to help pay for its costly, 2-year-old fight against the Islamic State group.
Iraq, whose oil revenues make up nearly 95 percent of its budget, has been reeling under an economic crisis since late 2014, when oil prices began their descent from a high of above $100 a barrel.
The plunge began just months after ISIS militants swept across large parts of northern and western Iraq. They seized territory that prompted a huge effort to rebuild and rearm large segments of the military and security forces and to care for a flood of people displaced from their homes.
On Wednesday, the 14-member Organization of the Petroleum Exporting Countries sealed a deal to lower its output for a six-month period by 1.2 million barrels per day. Effective Jan. 1, 2017 the group will produce 32.5 million barrels per day.
Non-OPEC nations are expected to pare an additional 600,000 barrels a day off their production. That includes Russia, which committed itself to reducing its output by 300,000 barrels per day.
Oil prices gained an immediate boost Wednesday with the international benchmark for crude jumping 8.3 percent, or $3.86, to $50.24. The price of oil dipped as low as $26 a barrel in February.
“If there was no deal, we would have been in a very bad situation,” said Iraqi lawmaker Haitham al-Jabouri, a member of parliament’s Financial Committee. “The deal will have a positive impact on oil prices and therefor on our precarious economic situation.”
Iraq’s financial crisis has forced the government to introduce austerity measures, eliminating posts, merging some ministries, halting spending on construction projects and imposing new taxes. It has also sought loans from foreign and local lenders.
In an interview Monday with the Associated Press, Prime Minister Haider al-Abadi described the level of oil prices as “inadequate.”
“According to our own calculations, I think that the rise in oil prices, every $1 for a barrel of oil will add $1 billion to our budget. So, I think we will have more by cutting the production and increasing the price,” al-Abadi said.
Iraq’s projected 2017 budget is based on a price of $42 per barrel and a daily export capacity of 3.75 million barrels. The nearly about $85.17 billion budget runs with a deficit of about $18.32 billion. Parliament has yet to ratify the Jan. 1 to Dec. 31 budget.
For the last several months, crude oil has traded between $40 and $50 a barrel. Before the OPEC meeting, the U.S. Energy Department predicted that crude would rise to $50 or $51 a barrel next year. OPEC will meet again in May 2017 to discuss a possible six-month extension of the deal.
Al-Jabouri said about 32 percent of the 2017 budget will go to the ministries of Defense and Interior and other security organizations, an increase from 28 percent in this year’s budget. Iraq won’t change the projected 2017 budget after the OPEC agreement, but instead will use the expected increased revenues to help bridge the deficit, he said.