Rising oil prices in the global market will benefit the winners of Iraq's latest election which will have to deal with persistent economic challenges and try to win over a disillusioned population, Emirates NBD said in a new note.

The new government will benefit from rising oil prices that should alleviate some of the pressures on its finances, and easing production curbs that will provide a real boost to the economy, said Daniel Richards, MENA Economist at the Dubai-based lender.

Oil fell back slightly on Wednesday after rising to $84 a barrel the previous day. Brent crude oil, the benchmark for Middle East's oil producers, was trading $82.72 a barrel.

No clear winner has yet emerged following Sunday’s elections in the OPEC member. Initial results showed that Shi'ite Muslim cleric Moqtada al-Sadr's party was the biggest winner according to initial results, with Sunni Mohammed al-Halbousi's Taqaddum coalition coming second.

Emirates NBD said it anticipates that Iraq's real GDP growth will have remained very weak at 1.1 percent this year, weighed down by OPEC+ oil production curbs and the ongoing Covid-19 pandemic.

"This will accelerate to 5.3 percent next year on the back of higher oil production and easing pandemic pressures, but with elevated inflation and ongoing power shortages, the non-oil sector will remain vulnerable.”

Shoring up prices

In terms of production, Iraq’s output averaged 4 million barrels per day (bpd) over the first nine months of this year, down 4.9 percent on the same period in 2020, as the OPEC+ wider oil producers bloc looked to shore up prices by curbing output in the face of weak demand.

With oil still accounting for around two-thirds of the Iraqi economy, any cut in output exerts a major drag on GDP growth, the lender said.

However, going into the final quarter of the year, “the OPEC+ agreement to boost output by 400,000 bpd will provide a fillip to Iraqi growth through Q4 and into 2022.”

Already production has risen to 4.1 million bpd in August and September, it added. Accounting for over 95 percent of exports, the boost this year will help bring Iraq’s current account deficit back into surplus after falling to -2.6 percent of GDP last year.

“We forecast a surplus of 7.5 percent this year and 7.8 percent in 2022 which should limit the need for any more currency devaluations of the like seen in December 2020 when the IQD was moved to a fixed rate with the dollar about 23 percent lower than it had previously,” said Richards.

(Writing by Brinda Darasha; editing by Daniel Luiz)


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