Iraq crisis and the UAE economy
By Jethu Abraham
The United Arab Emirates took a clear stance on the Iraq unrest last Wednesday when it recalled its ambassador to Iraq and condemned the Shiite-led government’s sectarian violence that erupted across the country.
On the outset, Qatar, Oman and the UAE are more politically and economically insulated from events in Iraq than Saudi Arabia, Kuwait or Bahrain. The UAE’s long history of political and economic stability also means that it would be seen as a safe haven in an otherwise unpredictable region. When the 2011 Arab Spring held the Middle East region in a vice-like grip, the UAE became a hotbed for direct foreign investment attracting large amounts of capital ($8.2 billion) from Egypt, Tunisia, Syria and Yemen.
Presently, and despite the looming scenario, officials in the UAE urged businesses and investors, last week, to tap into Iraq’s Kurdistan region in the energy, agricultural, health and education sectors for economic potential. In a statement to WAM, Undersecretary for Foreign Trade Affairs at the UAE Ministry of Economy, Abdullah Al Saleh said: “Recent meetings in Erbil, between UAE government officials and representatives of the private sector and Kurdistani government and private companies, showed very clearly that the region’s market is very promising and can take in more UAE products and commodities, and provide many investment opportunities for UAE businesses willing to expand their operations into Iraq.”
For most countries across the globe, this would seem a highly ambitious plan, as currently Iraq and the whole region is viewed with scepticism. Yet, countries closer to Iraq are quite aware of the trouble spots in the country and the huge potential offered by the rest of Iraq. The relatively unknown Erbil is now being propagated as an important economic zone for strategic partnerships in an otherwise changing geopolitical environment.
The question then moves on to Iraq’s crude oil supplies and how that would affect the OPEC supply. While the growing concern over the unrest boosted Brent crude oil figures to a nine-month high of $115 a barrel, an OPEC meeting held last week was fairly uneventful with its 30 million barrels per day output ceiling unchanged for another six months.
This calm could also rise from the fact that most of Iraq’s fighting has occurred in the northern region, where oil production has slowed-down. Most of Iraq’s current oil supply comes from the terminals near Basra, in the south, an area thought to be completely safe and away from where the rebels are currently located.
Yet, the International Energy Association has forecast an impact, even if the fighting stays in Iraq’s northern area. If so, Iraq, the OPEC’s second largest producer, would leave some serious gaps in the supply chain. Speculatively, it would be at this point that the expectation would turn to Saudi Arabia or to the UAE.
On the trading front, Iraq still stands seventh among UAE’s trading partners and have around 130 registered companies in the country. TradeUAE Iraq, a forum set up exclusively to promote trade and investment between the two countries continue to hold regular exhibitions to encourage UAE businessmen to invest in Erbil.
What remains to be seen is how Iraq’s political dynamics will shape future economic relations between the two countries.