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Iraq hopes OPEC deal will help cover its war costs

Country’s two-year battle against Islamic State has created economic crisis

By SINAN SALAHEDDIN, Associated Press
Published: December 1, 2016, 6:18pm

BAGHDAD — 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 Islamic State 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, 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.

“The deal will have a positive impact on oil prices and therefore on our precarious economic situation,” said Iraqi lawmaker Haitham al-Jabouri, a member of parliament’s Financial Committee.

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.

Prime Minister Haider al-Abadi described the level of oil prices as “inadequate.”

“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 100.67 trillion Iraqi dinars (about $85.17 billion) budget runs with a deficit of 21.65 trillion dinars (about $18.32 billion). Parliament has yet to ratify the Jan. 1-Dec. 31 budget.

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